Volkswagen expecting profits and sales to remain about the same in 2025 doesn’t sound very exciting, but as existential problems mount some investors might see this as exceptionally brave.
After all, sales in Europe look set to stagnate, while electric vehicles still sit on forecourts for too long as buyers hope for government incentives to be reinstated. One recent EV plus point for VW was the European Union’s decision, awaiting ratification, to ease the rules for CO2 emissions in 2025 by extending them for two extra years. VW was seen as the principal beneficiary of this concession with analysts expecting a €1.5 billion ($1.6 billion) hit to earnings before the EU Commission’s decision.
China’s competition versus VW in Europe will continue to ratchet higher, while its once formidable profits in China will fall again. VW has been hit by the tariff dispute between the U.S., Mexico and Canada. But the biggest threat on the horizon for VW is from President Donald Trump’s plan to rationalize its tariff regime with Europe.
Trump has described the EU’s trade policy as “an atrocity.” He will reveal his plans on April 2 and has already said auto tariffs will rise to 25%. Currently, the U.S. charges Europe a tariff of 2.5% on its imports of sedans and SUVs, while Europe imposes 10% on U.S. autos. Anyone expecting a quick concession by the EU to equalize tariffs is likely to be disappointed, because Trump has said Europe has imposed an unfair regime on U.S. imports because of its use of subtle disguises known as non-tariff barriers. Negotiations are likely to be protracted.
VW said Tuesday it expects its operating profit margin will increase to between 5.5% and 6.5% in 2025 compared with 5.9% in 2024. Sales will rise by up to 5%. In 2024, VW sales revenue rose 0.7% as global sales fell 2.3%. VW’s 2024 operating profit fell 15% to €19.1 billion ($20.9 billion) on sales of €324 billion ($354 billion).
VW’s Chief Financial Officer Arno Antlitz said the outlook reflects profound changes affecting the auto industry but does not attempt to include the possible impact of trade tariffs on imports into the U.S. from Mexico, or Europe.
Frank Schwope, automotive industry lecturer at the University of Applied Sciences FHM Hannover, said VW profits had been artificially boosted during the Coronavirus years which had caused a chip shortage. This had cut overall production, but allowed VW, and other automakers, to make more money by cutting sales of cheap, low-margin vehicles and selling more high profit premium vehicles.
“With the results for 2024, Volkswagen has come a little closer to reality,” Schwope said in an email.
“These high Coronavirus margins have recently been used as a benchmark by management boards in the industry. However, it is clear – as is also the case with Stellantis, for example – that these expectations were exaggerated and that the Coronavirus earnings figures cannot simply be extrapolated,” Schwope said.
VW, responding to the toughening conditions in car markets, has been attempting to cut costs and reform its counter-productive, politicized corporate structure.
It had sought to close three German factories, but late last year union leaders declared negotiations a “Christmas miracle” because there will be no immediate factory closures, layoffs or wage cuts. Volkswagen announced eventually more than 35,000 job cuts and a capacity reduction of more than 700,000 vehicles. VW agreed to keep 10 German factories running and retain job security until 2030 and planned to make €15 billion ($15.6 billion) in efficiency gains.
Orwa Mohamad, analyst at Minneapolis, Minnesota-based investment researcher Third Bridge, said bigger changes are required.
“High labor costs, outdated processes, and excessive complexity across its brands all contribute to its financial strain. Without addressing these broader inefficiencies, simply reducing factory footprints won’t be enough to restore competitiveness,” Mohamad said in an email.
VW’s weakening China profits are a concern. Its efforts to simplify operations have been slow, with too many models, too many variations, and Volkswagen’s target of a 9% operating margin by 2030 is unrealistic unless it makes deep structural changes, he said.
“The Volkswagen union remains a powerful force in shaping the company’s future. With significant influence over decision-making, it has already pushed back against drastic cost-cutting measures,” Mohamad said.
FHM Hannover’s Schwope expected more problems to mount for VW, but was confident it would be a match for them.
“The headwinds in and from China, the policies of the new U.S. government, the EU’s customs policy and, in particular, disruption will put the industry under massive pressure in the coming years. After the disruption caused by electromobility, the second stage of disruption is due at the end of the decade: Autonomous driving,” Schwope said.
“The Volkswagen Group will remain a permanent construction site for years to come, but it has always shown itself to be adaptable over the past decades. After all, the Group is still the second-largest car manufacturer in the world and is one of the five largest EV manufacturers,” Schwope said.
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