Tariffs, China, EV tech: VW comes out fighting its existential crisis as results are published

Falling sales, stalling profits, a China crisis and the looming threat of North American tariffs – Volkswagen Group is mired in its toughest business cycle since being rocked by the dieselgate scandal 10 years ago.

Publishing the group’s 2024 financial results today (11 March), decreased volumes led to falling automotive revenue and a 15 per cent lower operating profit of €19.1billion (£16.1billion), including restructuring costs.

But group CEO Oliver Blume came out fighting, saying three years of restructuring and the group’s new strategy – to be “the automotive tech driver” – would help it prevail in incredibly challenging market conditions.

“Our industry is at a turning point,” Blume said. “The pace of change is breathtaking. New competitors are entering the market with disruptive technologies, while governments are intervening in global trade.

“In this environment, we don’t just want to plan for the future, we want to actively shape it. Whoever says ‘yes’ to change, invests long-term in technologies and acts with foresight will put their stamp on the mobility of the coming decades.”

Here are Volkswagen Group’s toughest challenges – and its plan to overcome them.

Fix the China crisis

China, the world’s biggest car market, has historically been a source of huge profits for German car makers: Volkswagen is the largest foreign brand with 24 per cent of combustion-engine sales. But intense competition and a shift to electric cars and homegrown producers has hurt VW – the group has lost one million sales in the past six years.

In 2024 Volkswagen deliveries again slumped by 10 per cent, shedding a painful two per cent market share and with operating profit dropping from €2.6bn to €1.7bn. “We’re feeling the effect of intense price competition in China,” said VW Group financial boss Arno Antlitz. 

Similarly concerning is that the transition to EVs is leaving Volkswagen behind – it lags in eighth place for electric sales. But it’s taking action. 

Having attempted to go it alone on software with its Cariad division, Volkswagen has pulled a u-turn and called in partners to help deliver cutting-edge operating systems. In China, VW has teamed up with Xpeng to develop its China Electronic Architecture (CEA).  

VW gave a sneak preview of its Chinese cockpit technology – and while European tastes prefer a mix of physical and digital controls, Chinese buyers want the opposite. “Young consumers want to control touchscreens like an iPad,” said software spokesperson Ran Liu.

That means hyper-responsive graphics, myriad controls – even down to window winding (mirroring Tesla’s playbook) – grouped on the touchscreen and youthful digital features. One feature is for next-gen EVs to capture an avatar of the driver, mix it with photos of the route’s landscape and post it to social media.

VW is also striving to catch up on Level 2++ assisted driving, giving cars the capability to assist in Chinese-specific driving conditions. So vehicles will be capable of cutting into unyielding single-lane urban traffic queues, handle swarms of pedestrians mingling with traffic and, on the highway, monitor fast-approaching rear traffic during evasive lane changes. 

Audi (with partner SAIC) will launch its first new-generation EV in late 2025, with a big Volkswagen brand multi-vehicle roll out in 2026.

Brace for US tariffs and a possible EU trade war

A looming threat of 25 per cent tariffs hangs over US car makers moving finished cars and components around the US-Mexico-Canada (USMCA) trade zone.

“We have calculated a number of scenarios, not just about [North American trading arrangements]. Nothing is on the table right now,” said Oliver Blume. The CEO hopes that EU-US discussions on the balance of trade and American tech companies’ revenue flow from the European market will help avert tariffs – EU car imports currently face a 2.5 per cent duty entering the US.

The Volkswagen brand has a US factory in Chattanooga, Tennessee, and is constructing a plant in South Carolina to revive the Scout heritage SUV brand with an electrified pick-up and utility vehicle. But – as with all US manufacturers – its supply chain is hugely integrated across borders. 

And it imports the Tiguan and new Tayron from a factory in Puebla and the Audi Q5 from San José Chiapa, both in Mexico. 

If the Trump administration does enforce a 25 per cent duty on imports from Mexico and Canada, VW has three unpalatable choices: pass on the cost to consumers – which will hit its dealer network and suppress demand – absorb it or split the tax with its customer base. Whichever way the outcome is a major profitability hit. 

Revamp its European operations

Volkswagen Group global deliveries slipped 2.3 per cent to 9.02 million vehicles, with deliveries in the western European market slightly down, at 3.26m units. But this masks Volkswagen’s excessive European capacity of around 500,000 units per year.

Management had pushed for three German factories to close but finite action is limited to ID.3 production in Dresden ceasing at the end of this year. The ‘zukunft’ (Future Volkswagen) plan negotiated with Germany’s powerful unions settles on losing 35,000 workers by attrition before 2030 and eliminating 734,000 production units. Volkswagen calculates this will save more than €15bn a year in the medium term. 

The annual results included a €2.6bn restructuring bill, with measures including €880m on early retirement programmes and €1bn to cover the shuttering of the Audi Q8 e-tron factory in Brussels in February 2025. 

It’s notable that the plan eliminates two electric car lines; western European EV adoption slowed by almost six per cent in 2024, with German zero-emission sales plunging by more than a quarter after the ending of subsidies. 

Group EV sales fell by 30 per cent in the US and by five per cent in Europe, a trend that posed a significant risk of Volkswagen facing fines for missing its average fleet CO2 reduction threshold in Europe. 

“We now have three years to meet the 2025 target and can compensate in 2026-27 when we can overperform with the ID.2 and ID.1 family,” said Oliver Blume. “We welcome the European Commission proposal which gives us more breathing space. Instead of paying fines, we can reinvest in the business to perform better.”

A lack of affordable EVs has hampered the group’s attempt to hit the CO2 target. The Volkswagen brand will address this in 2026, when the production hatchback and crossover versions of the ID.2all concept launch, followed in 2027 by the ID.Every1 electric city car.    

These will be powered by lithium iron phosphate batteries from Volkswagen’s European gigafactories in Salzgitter, Lower Saxony, and Valencia, Spain. But they will face a challenge from low-cost Chinese EVs, both imported and ones assembled in Europe by BYD and Chery. 

New strategy: be the global automotive tech driver

The battery investments are part of Volkswagen’s strategy to survive. The group is also striving to speed up new model introductions to better compete with the rapid-acting Chinese, with software and digitalisation becoming ever more critical pillars.

While the Xpeng partnership’s software know-how will be made available globally, Volkswagen is two years into a software deal with US EV maker Rivian to co-develop a new operating system for the western hemisphere. The group underwent an intense benchmarking exercise, ruling out strong competitors and software that was too reliant on rival hardware to implement easily across the group.   

Volkswagen AG is also investing in public and home charging plus automated driving and ride hailing through ID.Buzz pilot programmes in Hamburg, Munich, Oslo and Austin, Texas. 

“The world of mobility is undergoing radical change – and we willshape it,” vowed Volkswagen Group CEO Oliver Blume.

“What gives us the strength to realize this ambition? Our unique combination of global presence and local competence. We use our global size, but at the same time we understand the specific needs of regional markets. That is our crucial competitive advantage.”

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