Volkswagen expects margin recovery in 2026 after difficult year

08:20

By: Dakir Madiha

Volkswagen expects margin recovery in 2026 after difficult year

Volkswagen said it expects its operating margin to improve to between 4.0 percent and 5.5 percent in 2026 after a challenging 2025 marked by tariffs, rising competition from Chinese automakers, and the high cost of shifting toward electric vehicles.

The German carmaker reported an operating margin of 2.8 percent for 2025, slightly below the 2.9 percent forecast by analysts surveyed by Visible Alpha, according to Reuters. The results were presented during the company’s annual conference for media and analysts in Wolfsburg, highlighting the scale of the restructuring effort facing Europe’s largest automaker.

Volkswagen’s 2025 performance was affected by multiple pressures. U.S. tariffs on European car imports alone cost the company about 1.3 billion euros during the first half of the year, forcing the group to lower its outlook twice.

The company also faced growing challenges in China, once its most profitable market. Vehicle deliveries there fell 8 percent to 2.69 million units as local competitors such as BYD and Geely gained market share. Overall group deliveries declined by 0.5 percent to 8.98 million vehicles.

Profitability dropped further after Volkswagen recorded an operating loss of 1.3 billion euros in the third quarter. The loss reflected 7.5 billion euros in special charges linked to tariffs and a strategic adjustment in Porsche’s electric vehicle plans. As a result, the group’s operating margin for the first nine months of the year fell to 2.3 percent.

One positive indicator was cash flow. Volkswagen reported net cash flow of 6 billion euros for the full year, far above its own projections that had been close to zero. The improvement was driven mainly by inventory reductions and lower capital spending.

Despite the company’s expectation of stronger margins in 2026, analysts remain cautious. The Financial Times reported ahead of the earnings release that Volkswagen’s recovery remains uncertain as Chinese competitors pose what some analysts describe as an existential threat to traditional automakers.

Analysts at Jefferies also noted that Volkswagen expects vehicle volumes to remain broadly stable in 2026.

Chief executive Oliver Blume, whose contract has been extended until 2030 after he stepped down from his dual leadership role at Porsche, has warned that the industry is entering a new phase of competition. Speaking at the Munich auto show last year, he said the long period of strong growth enjoyed by the global auto industry had ended and that manufacturers now face a period of major restructuring.

Volkswagen plans to reduce costs across all brands by 20 percent by the end of 2028. The company has also invested 3 billion euros in a dedicated research and development center in Hefei, aimed at designing vehicles tailored to Chinese consumers.

For investors, the key question remains whether these measures will be enough to narrow the gap with rivals that are introducing new models much faster.