In the era of sweeping transformation across the global automotive industry, traditional automotive giants are facing unprecedented challenges. The Volkswagen Group recently presented a mixed set of results.

On the surface, Europe's largest carmaker maintains a massive scale. Last year, it achieved sales revenue of 321.9 billion euros, largely consistent with the 324.7 billion euros from 2024. Global vehicle sales remained at a historically high level of approximately 9 million units.

However, another set of figures is more striking: the Group's operating profit for 2025 was only 8.9 billion euros, a decline of approximately 53% compared to the 19.1 billion euros in 2024. The operating return on sales also fell from over 6% previously to 2.8%. Throughout last year, Volkswagen's full-year earnings guidance was revised downwards three times, with the operating return on sales guidance being lowered from an initial 5.5-6.5% to 2-3% by year-end.

This situation of "increased revenue without increased profit" reflects the significant pains traditional automakers must endure during the transition towards electrification and digitalization. The plan recently announced by Volkswagen Group CFO Arno Antlitz to cut 50,000 jobs further brings this pain into public view.

Yet, this is not a signal of decline, but rather a strategic decision, akin to a warrior cutting off a wounded limb, made by an industrial giant with decades of history in the face of fundamental industry changes.

**Challenges**

For the automotive titan, the sharp profit decline is not due to a single factor, but the result of multiple overlapping pressures.

A significant variable came from the North American market. Volkswagen cited North American tariffs as a key external pressure on full-year profit and cash flow. CFO Arno Antlitz noted during the earnings call that "US tariffs had a significant impact." In the third quarter of last year, Volkswagen stated directly that tariffs had imposed a burden of nearly 5 billion euros.

However, this pain is not unique to Volkswagen; Stellantis and Mercedes-Benz also withdrew their full-year profit guidance last year due to tariff issues.

Pressure also came from China, its largest market. Last year, Volkswagen's deliveries in China were 2.69 million vehicles, an 8% year-on-year decrease. Growth in European and American markets was almost entirely offset by the decline in the Asia-Pacific and Chinese markets.

Breaking down the sales structure, internal combustion engine vehicles remained the mainstay of deliveries. The Lavida, Sagitar, and Passat, priced around 100,000 to 250,000 yuan, ranked as the top three models by sales, collectively accounting for one-quarter of the annual delivery volume.

Finally, a key factor dragging down profits was brand and organizational restructuring.

The Group's sports car brand Porsche, once a major profit contributor, barely turned a profit in 2025. Revenue fell to 32.185 billion euros, with operating profit dropping to just 90 million euros. The operating return on sales plummeted from 14.5% in 2024 to 0.3%. In contrast, Skoda's return exceeded 8%.

Porsche's biggest issue was its miscalculation in the transition to electric vehicles. In September last year, Porsche separately announced it would readjust its product strategy, returning to a "parallel approach for combustion engine, plug-in hybrid, and all-electric vehicles." This was expected to burden operating profit by up to 1.8 billion euros in 2025. Special items related to this strategic realignment totaled approximately 3.1 billion euros for the full year. These two factors had a combined negative impact of 5 billion euros on the Volkswagen Group's operating performance in 2025.

Simultaneously, structural overcapacity and persistently high operating costs became heavy burdens on the Group. The overall capacity of the European car market, after years of fluctuation, has been unable to return to its peak levels. A significant portion of vanished market demand means some of Volkswagen's plants in its home region are facing underutilization.

Combined with recent signals from management, this structural market shrinkage directly led Volkswagen to undertake a painful reshaping of its human resources structure. The plan to cut approximately 50,000 jobs by 2030 is precisely intended to adapt to this smaller market size.

**Underlying Strength**

Although the 2025 income statement appears bleak, a deeper analysis of Volkswagen's core data reveals the giant has not lost control. Details from the financial report show the automaker still possesses a fairly solid foundation.

In 2025, net cash flow from the Automotive Division reached 6.4 billion euros, a 24% increase year-on-year, significantly higher than the 5.2 billion euros in 2024. Meanwhile, the Group's net liquidity remained stable at 34.5 billion euros by the end of 2025. For an automaker undergoing a massive technological transformation, ample cash reserves mean greater strategic resilience.

**Countermeasures**

In response to challenges, Volkswagen has begun implementing multi-faceted adjustments.

The most direct step is strengthening cost control and organizational efficiency. The aforementioned plan to cut 50,000 jobs is the most direct manifestation of this strategy. Volkswagen aims to gradually reduce operating costs by eliminating redundant positions, optimizing production systems, and integrating brand resources.

On the product front, Volkswagen is preparing to launch an unprecedented offensive. In 2025, the Group launched 30 new models, but this was merely a prelude. CEO Oliver Blume mentioned that from the second quarter through the fourth quarter of this year, the Group will launch seven all-new models, which are expected to provide a significant boost to sales in the second half. Overall performance is anticipated to see a clear leap forward by 2027.

In the mass market, prices stabilized in 2025, while localized products featuring new technologies and cost structures began entering the market. These new vehicles are expected to start contributing financially from 2027 onwards.

Meanwhile, Volkswagen is also accelerating its electrified product rollout. The Group stated that in 2026 it will launch a series of more cost-effective all-electric models to enhance the competitiveness of its EV business. Currently, all-electric vehicle orders account for approximately 22% of the order backlog in Europe, indicating rapidly growing demand. For Volkswagen, balancing brand premium with EV cost control will be key to future profit recovery.

Regarding China, the Group's proportionate operating profit there fell from 1.742 billion euros to 958 million euros over the past year. However, the most difficult period appears to be passing. Moving forward, China is viewed by Volkswagen as the absolute main battlefield for strategic breakthrough.

In recent years, Volkswagen has promoted its "in China, for China" strategy, aiming to improve responsiveness through local R&D and supply chains. The Group established its largest R&D center outside German headquarters in China - Volkswagen Group China Technology Company (VCTC) - and strengthened the capabilities of its software unit CARIAD in China. In the coming years, Volkswagen plans its largest-ever product offensive in China, hoping to regain a competitive edge in the smart electric vehicle sector.

Now, the Group's new vehicles in China are more localized, with development cycles shortened by over 30% and material costs reduced by more than 40%. This experience not only helps Volkswagen enhance its competitiveness in China but can also be applied to other regions worldwide.

The joint venture,酷睿程, established with Horizon Robotics, not only helps Volkswagen catch up in autonomous driving but also serves as a self-developed "brain" for system-on-chips in smart connected vehicles. Additionally, the new CEA electronic architecture was brought to mass production within 18 months.

Concurrently, the US market has been designated a key area for expansion. Amid shifts in the global industrial chain landscape, Volkswagen is increasing its local production and technological investment in North America, with batteries, software, and automated driving technology being key future investment focuses.

Looking back, the challenges Volkswagen faces are common to the entire traditional automotive industry. The waves of electrification, software integration, and automated driving are reshaping the competitive rules of the auto industry. Advantages built on scale, brand, and manufacturing prowess in the past must now be combined with software development capabilities, data ecosystems, and new supply chain systems.

For the nearly 90-year-old Volkswagen Group, such a transformation cannot happen overnight. Profit volatility, organizational adjustments, and strategic trial-and-error are almost inevitable phases.

As Volkswagen Group CEO Oliver Blume stated, the automotive industry environment has fundamentally changed, and Volkswagen is entering the "next phase" of its transformation. The goal of this phase is not merely to produce cars, but to become a "global leading automotive technology company."

In this process, the 2025 profit decline might be better viewed as a阶段性代价. The real test lies in whether this traditional automotive giant can complete the leap from "manufacturing-driven" to "technology-driven" in the coming years.

If the transformation proceeds smoothly, Volkswagen still has the opportunity to secure an important position in the new automotive industry landscape. If its pace lags, competitive pressure from Chinese NEV makers and tech companies will continue to intensify.