Volkswagen has reported a sharper-than-expected decline in first-quarter profits, prompting the German automotive giant to warn that its future depends on deeper cost reductions. The group's net profit fell 28% year-on-year to €1.56 billion for the period from January to March, while revenues dropped 2% to €75.7 billion, undershooting analyst forecasts.
“The cost reductions planned so far are not enough,” said chief financial officer Arno Antlitz. “We need to fundamentally change our business model and achieve structural, sustainable improvements — in all areas and at all levels. If we fail to do that, we will jeopardise our future.”
Antlitz outlined a multi-layered cost-cutting programme that could include lowering vehicle production costs without compromising quality, significantly reducing overheads, and “increasing the efficiency of our plants and accelerating technology development and decision-making.” The company already plans to cut 50,000 jobs across all its brands in Germany by 2030.
China headwinds and tariff burdens
Volkswagen sold 2 million vehicles in the first quarter, down nearly 7% from a year earlier. Growth in South America (+3%), Western Europe (+1%), and Central and Eastern Europe (+7%) partially offset steep declines in China (-20%) and North America (-9%). Chinese automakers such as BYD have emerged as fierce rivals in the electric vehicle segment, both in China — traditionally a key profit source for Volkswagen — and increasingly in Europe.
Antlitz warned that Chinese competitors are not only defending their home market but also gaining market share in Europe. Meanwhile, US President Donald Trump's tariffs, introduced a year ago, are costing the group an additional €4 billion annually.
The group forecasts overall sales growth of between 0% and 3% in 2026, with its core profit margin expected to land between 4% and 5.5%. Volkswagen said the possible impacts of the war in the Middle East were not included in these forecasts, as they cannot be reliably assessed.
Volkswagen's struggles reflect a broader malaise in Germany's manufacturing sector, Europe's largest economy. The company's annual profits slid to their lowest level in almost a decade in 2025. CEO Oliver Blume said on Thursday that Volkswagen needs to align its strategy with a world “undergoing fundamental change.”
“Wars, geopolitical tensions, trade barriers, tighter regulation, and intense competition are creating headwinds,” Blume said.
The broader European economic context adds to the pressure. The Iran conflict has pushed the eurozone into recession, further dampening demand for new vehicles. Meanwhile, some European banks have posted record profits amid the volatility, as seen with Deutsche Bank, Santander, and UBS, highlighting the uneven impact of current geopolitical tensions across sectors.
Volkswagen's warning underscores the existential challenges facing traditional European automakers as they navigate a rapidly shifting landscape of trade disputes, technological disruption, and geopolitical instability.
