Volkswagen Group has slashed its full-year earnings forecast once again, with a major impairment on its Porsche business, intensifying competition from Chinese automakers, and escalating restructuring expenses cited as the principal causes.

In an announcement on September 18, the German auto giant projected group sales revenue of approximately €315 billion for 2026, with an operating return on sales reaching just 1% at best. This figure significantly misses the analyst consensus of 4.29% and is a steep drop from its previous guidance of 4% to 5.5%.

The company anticipates that special items will impact operating profit by around €10 billion this year, with roughly €6 billion of that stemming from a non-cash impairment of goodwill in its Porsche business.

In response to the downward revision, Volkswagen's share price tumbled as much as 7.5% on Friday before closing down 5.6%. Shares of Porsche also fell 4.9%, while the broader European automobile and parts sector experienced a 3.4% decline.

Porsche's €6 Billion Impairment

The most striking element of Volkswagen's latest profit warning is the approximately €6 billion goodwill impairment related to its Porsche division.

Volkswagen stated that Porsche has updated its mid-to-long-term strategic planning. Consequently, the group adjusted its long-term assumptions used for valuing the business and conducted a goodwill impairment test, leading to the expected non-cash charge of about €6 billion. This cost will be primarily reflected in the third-quarter operating profit.

Porsche had previously set a mid-term operating margin target range of 10% to 15%. Volkswagen noted that the deteriorating profitability outlook for the Porsche business is a primary reason for the write-down.

Porsche is currently under significant earnings pressure due to the dual headwinds of US tariffs and declining demand for foreign luxury brands in China.

It is crucial to note that goodwill impairment is a non-cash expense and does not directly result in a comparable cash outflow. Therefore, Volkswagen's profit warning does not necessarily equate to a deterioration in its cash flow position.

Growing Competitive Strength of Chinese Car Makers

Beyond the Porsche impairment, the increasing competitiveness of Chinese automakers represents another major source of pressure for Volkswagen.

Volkswagen explained that in the Chinese market, consumer demand is accelerating its shift toward battery-electric vehicles, causing the company's actual operating performance to fall short of its earlier expectations. The Audi and Volkswagen Passenger Cars brands have been particularly affected by this trend.

Simultaneously, Chinese electric vehicles are entering the European market in large numbers, further intensifying competitive pressures on Volkswagen's home turf.

As Chinese manufacturers like BYD expand their competitive advantages in the EV sector, Volkswagen must not only contend with pressures on sales volume and market share but also allocate increased capital for its electric transformation.

Volkswagen explicitly stated that the accelerated growth in demand for pure electric vehicles is a factor influencing its operating profit expectations. Since the profit margins for electric models are generally lower than those for comparable combustion-engine vehicles, the rapid shift in the sales mix towards electric vehicles is diluting overall profitability. Meanwhile, cost-reduction measures in Germany have not yet been fully implemented.

Rising Restructuring Costs

In addition to the Porsche impairment, Volkswagen expects to incur other one-off negative impacts of approximately €2 billion in the second half of the year.

The company stated that these costs include expanding its early retirement program, the planned sale of its Osnabrueck plant, and non-cash impairments of assets related to its operations in China.

Volkswagen has already initiated a large-scale restructuring plan. As previously reported, the group intends to cut half of its model lineup over the next ten years and add 50,000 new job cuts. Combined with previously reduced positions, the group's total workforce reduction would reach 100,000.

Arno Antlitz, Volkswagen's Chief Financial Officer and Chief Operating Officer, stated that these special items are expected to impact operating profit by about €10 billion this year, with approximately €9 billion of that amount being recognized in the second half.