Volkswagen’s Q2 Performance: Challenges and Market Insights

Volkswagen, the leading automaker in Europe, recently adjusted its full-year expectations downward and reported a significant decline in its second-quarter profits. This development comes as the company faces various challenges, including the effects of U.S. tariffs and the costs associated with restructuring.

Financial Overview

In the three-month period ending in June 2025, Volkswagen recorded an operating profit of 3.83 billion euros (approximately $4.49 billion), marking a staggering 29% drop from the 5.4 billion euros registered in the same timeframe last year. Analysts had anticipated a profit closer to 3.94 billion euros, indicating that the company’s performance fell short of expectations.

Additionally, Volkswagen’s sales revenue for the second quarter was 80.8 billion euros, again below analysts’ forecasts of 82.2 billion euros. The automaker attributed a loss of 1.3 billion euros to U.S. tariffs during the first half of 2025, with restructuring costs reaching 700 million euros over the same period.

Looking ahead, Volkswagen has revised its operating return on sales forecast for 2025, projecting a range of 4% to 5%, down from an earlier estimate of 5.5% to 6.5%. The company now expects full-year sales to align with last year’s figures, previously anticipating a possible increase of up to 5%.

Industry Challenges

The automotive sector is currently grappling with a myriad of challenges. European manufacturers, including Volkswagen, are pressured by increasing competition from Chinese automotive brands. Moreover, U.S. tariffs imposed by former President Donald Trump, amounting to 25%, have heightened these challenges. The automotive industry is especially sensitive to such tariffs due to its highly globalized supply chains and reliance on manufacturing operations across North America.

Volkswagen’s Chief Financial Officer, Arno Antlitz, highlighted the mixed performance for the first half of the year. He recognized the strong demand for the company’s vehicles, particularly electric models, but acknowledged that profit margins have been affected as production ramps up.

Sales Performance Insights

In the second quarter, Volkswagen reported a 3% decline in vehicle sales, totaling 80.8 million. However, order intake in Western Europe increased by 19% in the first half of the year. The automaker projects an investment ratio between 12% to 13% in its automotive division for the full year.

While the U.S. tariffs pose a severe threat, Volkswagen believes they will remain at 27.5% through the second half of the year, contributing to ongoing uncertainties in trade policies. This scenario has created a challenging environment for the company’s operations in North America, where it noted a 16% decline in vehicle sales largely attributed to tariffs.

Domestic vs. International Sales

Rico Luman, a senior economist at ING specializing in transport and logistics, observed a noticeable increase in Volkswagen’s electric vehicle (EV) sales, especially within Europe. He noted that domestic markets are thriving, with electric vehicle sales contributing considerably to the company’s growth.

Although Volkswagen has faced challenges in the export market, Luman pointed out that it has benefitted from a dip in Tesla’s sales, which may have allowed Volkswagen to capture a larger share of the European EV market. Currently, the firm’s global EV sales account for 11% of its total sales, with even higher figures within Europe.

Volkswagen reported a remarkable growth in vehicle sales across various regions: an increase of 19% in South America, 2% in Western Europe, and 5% in Central and Eastern Europe. These gains more than compensated for the anticipated 3% decline in China and the significant 16% dip in North America due to tariffs.

In summary, Volkswagen is experiencing a complex mix of successes and challenges as it maneuvers through a changing automotive landscape. With strong domestic performance and a growing push toward electric vehicles, the company remains a key player in the industry, even as it navigates headwinds from tariffs and global competition.