Volkswagen's profits plunged 45%: Costs and competition squeezing margins, limited profit recovery this year.

Europe's largest car manufacturer Volkswagen (VWAGY.US) announced a significant decrease in operating profit on Tuesday, and predicted that its declining profit margin could only slightly recover. The financial report shows that Volkswagen's revenue in the fourth quarter of 2025 was 83.25 billion euros, a decrease of 4.7% year-on-year; quarterly operating profit fell to 3.46 billion euros, a sharp drop of 44.6% year-on-year. Due to rising raw material costs, intense competition, and political tensions intertwined with GEO Group Inc, Volkswagen expects its return rate to continue to be under pressure this year. Volkswagen stated on Tuesday that it expects the operating profit margin in 2026 to be between 4% and 5.5%, compared to 2.8% in 2025 and 5.9% in the previous year. The company will focus on cost reduction and simplification this year, and faces increased burdens from differentiated regulatory policies for low emissions. The manufacturer had already planned to cut about 50,000 jobs by 2030 and is committed to further cost savings from its vast operations. Management is also not optimistic about the growth prospects in 2026, with the company predicting revenue growth of between 0% and 3% at that time. The stock performance of Volkswagen and Porsche is significantly lagging behind the European car index. CFO Arno Antlitz stated in a declaration that the current operating profit margin of 4.6% is not enough in the long run. He added that the company will seek to increase sales in the US while continuing to restructure the business. The company proposed a dividend per share of 5.26 euros (about 6.12 US dollars) for 2025, a decrease of 17%. In Volkswagen's largest market, China, the company is struggling to cope with rapidly changing competitive pressures; while in Europe, market demand remains weak due to the fluctuations in the transition to electric vehicles. Furthermore, the possibility of a war between the US and Iran in Iran has also increased the risk of supply chain disruptions and may lead to delayed consumer spending. Since the outbreak of the conflict, energy and fuel prices have soared, exacerbating inflation concerns. Freight costs are also rising. Continental AG, one of the world's largest tire manufacturers, warned last week that revenue and profits will be negatively affected due to rising costs of petroleum-derived materials and logistics. Due to Porsche's withdrawal from an expensive electric vehicle plan, as well as pressure from US tariffs, Volkswagen's operating profit was reduced by more than half last year. The adjusted operating profit for 2025 decreased by 54% to 8.9 billion euros. Expenses and asset write-downs at Porsche led to this decline, with the sports car maker's profit margin remaining almost stable. In January, Volkswagen reported that last year's cash flow in the automotive business exceeded expectations. This was due to the company postponing multiple projects and investments as part of its electric vehicle strategy adjustment. All car manufacturers in the industry have cut back on aggressive battery electric vehicle promotion plans due to lower than expected demand.