There was a celebratory mood this week at the Volkswagen plant in Zwickau (Eastern Germany). This plant, which produces six different electric models for various brands of the concern, has just produced its millionth car – the ID.3 GTX sports hatchback. However, the active production lines are creating financial difficulties for the company’s management in Wolfsburg.
The main problem lies in the high production cost of electric vehicles and their lower profitability compared to internal combustion engine (ICE) vehicles. And although the doubling of electric car sales in Europe in the first quarter of 2025 is positive news, part of these sales is happening at the expense of reduced sales of conventional cars.
As the share of electric vehicles in total sales grows (they accounted for 20% in January-March), the company’s overall profitability is falling, which has reduced the margin to 4%. The termination of state subsidies for electric vehicles in many European countries is also complicating the situation, depriving Volkswagen of the opportunity to raise prices thanks to state support.
However, there are also optimistic prospects related to the new platform and the family of electric cars based on it. The ID.2 model, costing 25 thousand euros, which is planned for production in Spain from 2026, is set to become one of the first European electric cars with profitability close to that of conventional cars. This model, along with its SUV version, as well as the Cupra Raval and Skoda Epiq, use a new front-wheel-drive version of the MEB platform, which is cheaper to produce.
At the beginning of the month, Volkswagen reported a 40% drop in pre-tax profit – to 3.1 billion euros in the first quarter, despite a 1.4% increase in sales. The company’s CFO, Arno Antlitz, explains this by the increasing share of electric vehicles in total sales.
Potential trade restrictions from the US could further complicate the concern’s plans. The unstable situation with import tariffs in the US makes financial planning difficult for automakers, and Volkswagen, which is particularly vulnerable due to the lack of Audi and Porsche production capacity in America, has already warned investors of the possibility of a less successful year than expected.