The German carmaker also signalled that tougher market conditions, rising tariff-related expenses and intensifying competition—particularly from Chinese automakers—would weigh on its performance for the rest of the year.
For the April-to-June quarter, Volkswagen posted an operating profit of 3.5 billion euros ($3.98 billion), representing a decline of nearly 10 per cent compared to the same period last year. The figure also fell short of analysts' expectations of 4.3 billion euros, according to an LSEG consensus.
Reflecting the challenging operating environment, the company revised its revenue guidance, saying it now expects sales revenue to decline by as much as 3 per cent in 2026, abandoning its earlier projection of up to 3 per cent growth.
The disappointing earnings come just days after Volkswagen confirmed plans to eliminate up to 100,000 jobs—double the number previously indicated—as part of efforts to streamline operations and reduce costs amid declining profits.
The company has been grappling with billions of euros in tariff-related costs while facing fierce competition from fast-growing Chinese vehicle manufacturers, particularly in the electric vehicle segment.
Earlier this month, Volkswagen Chief Executive Officer Oliver Blume told employees in an internal memo that the company's cost base had become significantly uncompetitive.
According to the memo, Volkswagen's operating costs are around 20 per cent higher than those of comparable rivals, making further cost-cutting measures unavoidable.
Blume also revealed that the company had yet to identify alternative uses for four German manufacturing facilities previously considered for closure. The affected sites include Volkswagen plants in Hanover, Zwickau and Emden, as well as Audi's facility in Neckarsulm.
The development comes despite an agreement reached with labour unions in late 2024 that prevented factory closures in Germany and ruled out compulsory redundancies until the end of 2030.
Investor sentiment reflected the gloomy outlook, with Volkswagen shares falling about 3 per cent in Friday morning trading. The company's stock has now declined nearly 30 per cent since the start of the year.
Speaking after the earnings release, Volkswagen Chief Financial Officer Arno Antlitz described the latest results as a clear indication that further restructuring was necessary.
“This leads to this weight on our margin, a margin of roughly 4% is clearly a wake-up call that we have to do a second step of restructuring,” Antlitz said.
He noted that the global automotive industry had endured a difficult year, citing the impact of tariffs, the rapid expansion of China's domestic premium vehicle market and increasing exports of Chinese-made cars into Europe.
Addressing speculation about whether Volkswagen could repurpose some of its manufacturing facilities for the defence industry instead of shutting them down, Antlitz said the company remained open to exploring different options.
“There are various options. And look, I’m not looking for job cuts per se and I’m not looking for plant closures per se,” he said.
“We want to reduce our cost structure and we want to increase productivity and increase the capacity utilization of our plants. And if there are better options then we will obviously look into that.”
He added that finding alternative uses for the factories would be preferable to permanent closures.
Volkswagen has already begun adjusting its manufacturing footprint. In April, the automaker announced it would end production of its ID.4 electric sport utility vehicle at its Tennessee plant, citing a difficult market environment for electric vehicles in the United States.
Despite the challenges, Blume said the company had managed to withstand significant financial pressures while continuing its transformation strategy.
“At the same time, the environment for the automotive industry remains extremely challenging: geopolitical crises, trade conflicts, high regulatory requirements, volatile markets and intensified competition,” Blume said in a statement.
“In an unprecedented risk scenario, Volkswagen Group enters the next phase of its transformation – from a position of strength and with a clear understanding of the opportunities ahead,” he added.
The latest results highlight the growing challenges facing traditional European automakers as they navigate slowing demand, geopolitical uncertainty, rising production costs and an increasingly competitive global market led by rapidly expanding Chinese manufacturers.