Billion-Euro Money Pit: Volkswagen’s Electric Dream Turns Sour

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The company faces a twofold challenge in China. According to Volkswagen Group statistics, it delivered 973,000 vehicles there during the first half of 2026, down from 1.31 million in the same period a year earlier – a decline of 25.9%. Deliveries fell by 36.6% in the second quarter alone.

At the same time, Volkswagen faces competition from domestic manufacturers that bring electric vehicles to market more cheaply and quickly, often at aggressive prices. Chinese producers are also increasing their exports to Europe, leaving Volkswagen under pressure both at home and abroad. The trend is reflected in Volkswagen’s half-year delivery figures.

Profit Margin Too Low

US tariffs, restructuring costs and heavy spending on electric mobility and new software are adding to the pressure. The group generated revenue of €158.1bn ($183.4bn) in the first half of the year, almost unchanged from a year earlier. Operating profit nevertheless fell by 11.6% to €5.9bn ($6.8bn).

The operating return on sales – operating profit as a proportion of revenue – stood at 3.8%. At the core Volkswagen Passenger Cars brand, it was only 2.4%. The brand is part of the Volkswagen Group alongside Audi, Porsche, Skoda and Seat/Cupra. On revenue of €42.3bn ($49.1bn), the core brand generated an operating profit of only €995m ($1.2bn).

Blume considers an operating return on sales of 3.8% too low to finance the necessary long-term investment in vehicles, software, battery technology and plants. The group’s indirect costs are also about 20% above those of its competitors, according to a comparative analysis. Blume believes this points to further potential savings, which worldwide could be equivalent to the loss of as many as 50,000 jobs. No international job-cutting program on that scale has yet been approved.

Separately, Volkswagen, Audi, Porsche and software subsidiary Cariad have already agreed to cut around 50,000 jobs in Germany by 2030. More than 35,000 of these are at Volkswagen AG, the group’s German parent company. Wherever possible, the positions are to be eliminated without involuntary layoffs.

Alongside voluntary departures, management is relying on phased retirement, a transition scheme for older employees until they reach retirement age. According to Blume, arrangements have already been agreed for around 37,000 positions. About 27,000 employees are expected to be gone by the end of 2026.

Production Cuts

At the end of 2024, management and employee representatives agreed to reduce the annual capacity of Volkswagen’s German plants by approximately 734,000 vehicles. According to the group, factory costs at its German sites fell by more than 20% on average in 2025. Blume considers further action necessary. The scale of the restructuring is particularly clear at the plants he is now visiting.

At Volkswagen’s main Wolfsburg plant, the company’s historic headquarters, production will be consolidated from four assembly lines to two. The Golf and Golf Variant are to move from Wolfsburg to Puebla, Mexico, in 2027. Wolfsburg is later expected to take over production of an electric Golf and another model based on a new group-wide electric vehicle platform. The ID.3 and Cupra Born are also to be manufactured there. Volkswagen is simultaneously scaling back its technical development operations in Wolfsburg.

Volkswagen invested several billion euros converting the Emden plant exclusively to electric vehicle production. It still employs more than 7,700 people and manufactures the ID.4, ID.7 and ID.7 Tourer. The plant produced around 147,000 vehicles in 2025. Volkswagen has yet to name any models that could sustain the plant at competitive production levels into the 2030s.

The outlook is even more difficult in Zwickau. Volkswagen invested approximately €1.2bn ($1.4bn) in converting the plant entirely to electric vehicle production. It was designed to produce more than 300,000 vehicles annually, but output fell to around 212,000 cars in 2025. The plant has approximately 8,000 permanent employees.

From 2027, vehicle production is to be concentrated on one assembly line. Under current plans, the plant will focus primarily on the Audi Q4 e-tron and Q4 Sportback e-tron in the longer term.

Weak Electric Vehicle Market

Weak demand for electric vehicles is especially clear at the Emden and Zwickau plants. Consumers have shown limited interest, and European adoption has fallen well short of earlier expectations. At the same time, EU fleetwide CO₂ targets continue to force manufacturers to bring more electric models to market, even as demand cooled after major markets ended purchase subsidies.

Meanwhile, Chinese manufacturers and new competitors have intensified the price war. This has particularly affected Volkswagen plants such as Zwickau and Emden. Both were converted to electric vehicle production at great expense but are now operating well below capacity. Although orders for fully electric vehicles have recently risen again, existing capacity remains substantially above current demand.

It also remains unclear which models could keep Audi’s Neckarsulm plant economically viable into the 2030s. Blume also plans to address employees there. The plant employs around 15,500 people and produced just over 181,000 vehicles in 2025, including the A5, A6, A8 and e-tron GT.

The situation is similar in Hanover. The main plant of Volkswagen Commercial Vehicles, the group’s van and transporter division, produces the ID. Buzz and Multivan. Volkswagen has yet to name any models that could provide sufficient production volumes for the plant in the 2030s. Chief financial officer Arno Antlitz is expected to answer questions at the workforce meeting.

Arms Instead of Cars

Osnabrück faces a more immediate problem. Production of the T-Roc Cabriolet will end there in mid-2027. No successor model has yet been announced. Volkswagen is therefore looking for another industrial use for the plant and is also holding talks with defense companies.

Blume stresses that no further plant closures have yet been approved. A plant’s failure to secure future models does not automatically mean it will close. At plants where vehicle production is no longer economically viable, Volkswagen is considering partners, investors or alternative industrial uses.

The forthcoming workforce meetings are expected to indicate how far the new cost-cutting drive will go. Blume is working on a 2030 blueprint for a group that will permanently manufacture fewer vehicles, employ fewer people and operate with less capacity.

Crisis in a Key Industry

Germany is experiencing more than the crisis of a single company. It is facing a crisis in one of its most important strategic industries. The consequences extend far beyond Volkswagen. Lower production and investment also affect suppliers, engineering companies, logistics businesses and numerous regional service providers.

According to the German Association of the Automotive Industry, the country’s automotive supply industry alone employs more than 300,000 people. The association also reported that 64% of companies surveyed had already cut jobs in Germany during 2025. German automotive suppliers lost approximately 74,000 jobs between 2019 and 2025, equivalent to almost a quarter of the sector’s workforce.

Weaker vehicle production affects not only manufacturers and suppliers but also investment, exports and ultimately gross domestic product. According to the Federal Statistical Office, the automotive industry was already among the sectors dragging down industrial value added in 2025, while the overall economy grew by only 0.2%.