Volkswagen AG (VLKAY), Europe's largest automaker, reported a sharp decline in operating profit on Tuesday and forecast only a modest recovery for its contracting profit margin. Financial results revealed that the company's Q4 2025 revenue was €83.25 billion, a decrease of 4.7% year-over-year, while quarterly operating profit fell to €3.46 billion, a significant drop of 44.6%.
Facing a challenging outlook due to rising raw material costs, intense competition, and geopolitical tensions, Volkswagen anticipates continued pressure on its return rate this year. The company stated it expects an operating margin between 4% and 5.5% for 2026, compared to 2.8% in 2025 and 5.9% the previous year. This year's strategy will focus on reducing costs and operational complexity, though differing regulations for low-emission vehicles are adding to the burden.
The manufacturer had previously outlined plans to cut approximately 50,000 jobs by 2030 and is committed to achieving further cost savings across its extensive operations. Management expressed a cautious growth outlook for 2026, projecting revenue growth in a range of 0% to 3%. The stock performance of both Volkswagen and Porsche has notably underperformed the European auto index.
Chief Financial Officer Arno Antlitz stated that the current operating margin of 4.6% is insufficient for the long term. He added that the company will continue its business restructuring while seeking to expand sales in the US market. The company proposed a dividend of €5.26 per share for 2025, a reduction of 17%.
In China, Volkswagen's largest market, the company is contending with rapidly shifting competitive pressures. In Europe, demand remains subdued due to volatility in the electric vehicle transition. Furthermore, conflict involving Israel and Iran within Iran's borders increases the risk of supply chain disruptions and could lead consumers to postpone spending. Since the outbreak of conflict, energy and fuel prices have surged, heightening inflation concerns, and shipping costs have also begun to rise.
Last week, Continental AG, one of the world's largest tire manufacturers, warned that rising oil-derived material and logistics costs would negatively impact its sales and earnings. Volkswagen's operating profit more than halved last year, pressured by the Porsche brand's withdrawal from costly electric vehicle plans and US tariff pressures. Adjusted operating profit for 2025 fell by 54% to €8.9 billion, with expenses and asset write-downs at Porsche contributing significantly to the decline, leaving the sports car manufacturer's margin nearly flat.
In January, Volkswagen reported that cash flow from its automotive business last year was higher than expected, partly due to the postponement of several projects and investments as part of a strategic adjustment to its electric vehicle plans. Across the industry, automakers have scaled back aggressive battery-electric vehicle rollout plans following weaker-than-anticipated demand.
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