Volkswagen has revealed the depth of its financial pressures after cutting its expected 2026 operating profit margin to no more than 1%.
The downgrade, which was revealed as part of VW Group’s update for fiscal year 2026, exposes the competing pressures facing the manufacturer as it funds electrification, supports demand and restructures its global operations.
Volkswagen previously expected an operating return on sales of between 4% and 5.5%, while analysts had forecast an average of 4.1%.
An operating margin of 1% means the group expects to retain no more than €1 in operating profit for every €100 of revenue after its costs and special charges are taken into account.
Volkswagen achieved a margin of 2.8% in 2025.
The group expects approximately €10 billion (£8.59bn) of special effects to weigh on operating profit during 2026, including a €6bn non-cash impairment relating to Porsche.
Without those special effects, Volkswagen expects its full-year operating margin to be about 4%.
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Volkswagen said a faster shift in demand towards battery-electric vehicles was contributing to weaker-than-expected earnings, particularly at Volkswagen Passenger Cars and Audi.
The business also blamed a further deterioration in the automotive market, particularly in China, for the forecast reduction.
It said the combination of weaker market conditions and changing demand meant performance at Volkswagen Passenger Cars and Audi was falling short of its original expectations.
The company now expects group revenue of approximately €315bn in 2026, compared with €321.9bn in 2025.
That remains broadly equivalent to the midpoint of its previous forecast for revenue to decline by between zero and 3%.
Volkswagen has maintained its forecast for automotive net cash flow of between €3bn and €6bn. Net liquidity is still expected to be between €32bn and €34bn.
Profit warning follows major Volkswagen restructuring plan
The revised forecast follows Volkswagen Group’s approval of its Future Plan 2030, which will reduce its model portfolio by around 50% by 2035 and cut the complexity of its model and variant offering by approximately 75%.
VW is also reported to be considering phasing out the Seat brand before the end of 2029, as the group concentrates on the more premium and profitable Cupra marque.
Seat subsequently told AM that further investment in the brand had become increasingly challenging because of regulation, the economics of electrification and the cost of developing a new generation of vehicles.
It said several scenarios remained possible beyond 2030, including the gradual withdrawal of the Seat brand, although Seat SA and its dealer network would continue supporting existing customers.
Another substantial part of the earnings hit comes from Volkswagen reassessing the value of its Porsche business.
Porsche updated its long-term financial planning, including the assumptions supporting its previously communicated medium-term margin target of between 10% and 15%.
Volkswagen subsequently conducted an impairment test and reduced the value of goodwill allocated to Porsche by approximately €6bn.
The non-cash charge will reduce Volkswagen Group’s reported operating profit during the third quarter, although it does not involve €6bn leaving the business.
Tariff uncertainty remains
Volkswagen’s forecast assumes that the current international tariff environment will continue.
It does not include potential effects from any further escalation in the Middle East because the company said these could not yet be estimated reliably.
The outlook also excludes possible effects from implementing Volkswagen’s 2030 group strategy or disposing of its majority shareholding in engine and turbine manufacturer Everllence.
Volkswagen will publish its financial results for the nine months ending September 30 on October 29.
Its management and supervisory boards will consider the proposed dividend for the 2026 financial year at the beginning of 2027.