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Volkswagen is unlikely to see a profit rebound despite embarking on a historic restructuring programme as Europe’s largest carmaker faces an “existential threat” from Chinese competition, higher tariff and energy costs.
As the German carmaker prepares for Tuesday’s annual investor conference, analysts have called for more visibility on how its plants in Germany are improving productivity to compete with Chinese rivals who are rapidly expanding sales in Europe with affordable electric vehicles and plug-in hybrids.
“It’s an existential threat. You’ve got two choices. Produce a [vehicle] that you can price at a premium to everybody else or be cost competitive,” said Michael Tyndall, senior global autos analyst at HSBC, who last week cut its estimate for VW’s 2026 operating profit by 14 per cent.
Analysts expect the German group to achieve an operating margin of 5.2 per cent this year, compared with 5.9 per cent in 2024, when VW announced its restructuring plan. The carmaker is expected to post an operating margin of 2.9 per cent for 2025 due to its large Porsche writedown, according to data firm Visible Alpha.
VW is not alone in facing a wave of challenges. European rivals Mercedes-Benz and Renault — which will also reveal its long-term strategy on Tuesday — both projected lower operating margins as they face higher materials costs and an unfavourable foreign exchange rate. The US tariff impact is also predicted to be higher this year after companies used up their inventories in America.
“If you put it all together, higher EV penetration rate, higher price pressure, of course, you need to cut more costs,” said Bank of America auto analyst Horst Schneider.
VW agreed productivity targets in late 2024 with its powerful works council in exchange for no plant closures and forced lay-offs. Tyndall added: “It could be that they are going to have to take further actions for the factories to reach them, and given the other side agreed to the targets, I don’t know how much they can protest.”
The company said it has been able to cut factory costs by 30 per cent at Wolfsburg and two other plants but progress towards cost-saving targets has been uneven.
Tyndall said how much the sprawling group would be able to “declutter” non-strategic assets and subsidiaries would also be an important theme for 2026. VW is planning to sell its Everllence division, which has attracted bids that value the shipping engine and heat pump manufacturer between €5bn and €6bn.
VW in January surprised investors by disclosing that it generated €6bn in free cash flow last year — compared with its earlier guidance for about zero — due to lower-than-expected investments and research and development costs.
Its cash boost came as rival Stellantis announced two weeks later that it faced a cash outflow of €6.5bn as it wrote down €22bn to reset its EV strategy.
The significant improvement in VW’s cash flow, which is also one of the metrics used to calculate the size of management bonuses, allayed investor concerns about its financial position but also raised questions about the levers used to achieve it and sparked tensions with its workers.
Works council chief Daniela Cavallo has called on VW to pay employees a bonus for their contribution to the company’s improved financial situation.
VW brand chief Thomas Schäfer told workers last week that continuing financial discipline was needed and analysts were sceptical that the carmaker could afford to dish out more money to employees amid its ongoing cost-saving effort.
