Volkswagen faces deeper struggles in its luxury sector
Volkswagen Braces for Lower Profit Margins Amid Challenges
Volkswagen, the German automotive giant, has revised its profit margin expectations for the year, predicting a range of 4% to 5% of revenue. This is a significant drop from the previous forecast of 5.5% to 6.5% of revenue.
The lower profit margin forecast takes into account current tariff regulations, particularly those affecting U.S. imports. Analysts had already forecasted a profit margin of less than 5%, and this revised expectation seems to align with their predictions.
The main factors contributing to Volkswagen's profit drop in Q2 2022 and extending into 2025 reporting are numerous. One of the most significant factors is the imposition of U.S. import tariffs, which added significant extra costs, estimated at around $2 billion for the period. These tariffs impacted the cost structure especially for EV models imported into the U.S., increasing expenses and squeezing margins.
Another factor is the shift towards electric vehicles (EVs), which typically have slimmer profit margins compared to traditional internal combustion engine vehicles. While Volkswagen's vehicle deliveries increased, especially EV deliveries, this EV boom caused operating results to decline by over 30%. Investments in battery technology and supply chains have pressured short-term profitability.
Performance issues at high-profile divisions such as Porsche and potentially Audi have also contributed to Volkswagen's financial woes. Porsche experienced a significant profit warning with operating margins predicted to fall to 5%-7%, largely due to the impacts of U.S. tariffs and restructuring efforts. Audi’s growth in specific EV models like the Q6 e-tron was positive, but overall margins across VW brands suffered due to similar cost pressures.
Additional adverse factors include provisions related to CO2 fleet regulations in Europe and the U.S., exchange rate effects, and ongoing restructuring costs affecting earnings. These all contributed to an operating result decline from €10 billion to €6.7 billion in the first half of 2025.
In response to these challenges, CEO Oliver Blume has revised his revenue target for the year. Instead of aiming for up to 5% growth, he now targets revenue at last year's level. If the tariff rate falls back to 10%, the profit margin could reach the upper end of the new range.
[1] Automotive News Europe [2] Reuters [3] Bloomberg [4] The Drive
- What could potentially impact the profit margins of Volkswagen and other automotive companies in the industry, including finance and transportation sectors, are the U.S. import tariffs, which have added significant extra costs and squeezed margins, especially for electric vehicles.
- As a result of numerous factors including U.S. import tariffs, a shift towards electric vehicles, performance issues at high-profile divisions like Porsche and Audi, provisions related to CO2 fleet regulations, exchange rate effects, and ongoing restructuring costs, the profit margins of Volkswagen, a German automotive giant, are expected to drop, with the forecast now predicting a range of 4% to 5% of revenue.
- The revision of profit margin expectations by Volkswagen could have a significant impact on the business world, particularly the automotive, finance, and transportation industries, as the lowered profit margins might influence investment strategies and future business decisions.
