Volkswagen Is Making Less Money Because It’s Selling More EVs

The Volkswagen Group’s earnings after tax plummeted 40.6 percent to €2.18 billion in the first quarter of 2025. At first glance, you might assume this sharp decline was due to a drop in sales. But that’s not the case. Deliveries actually rose by 1.4 percent to 2.13 million units. So what’s going on? Ironically, the growing demand for electric vehicles is weighing on the company’s bottom line.

EV sales more than doubled in Europe in Q1 2025 (+113 percent) and jumped by 51 percent in the United States. One in ten vehicles delivered worldwide by the Group through March was electric. In addition, the order backlog in Western Europe for electric cars during the first three months jumped by 64 percent. EVs now account for over 20 percent of all orders in Western Europe. Across the entire continent, VW is the leader in the electric segment by having a 26 percent share. But this shift toward lower-margin EVs dragged the operating margin down from 6 percent to just 3.7 percent.

Arno Antlitz, Volkswagen Group’s CFO and COO, acknowledged that the company’s strong performance in electric cars highlights a harsh reality: EVs are still significantly less profitable than equivalent combustion vehicles. He admitted the automaker must work hard to cut production costs and boost margins on zero-emission models.

“This market success of our electric cars puts pressure on our result. An operating margin of around four percent clearly shows that there is still a considerable amount of work ahead of us. Given the current volatile global economic situation, it is even more important to focus on the levers within our control. This means complementing our great product range with a competitive cost base – so we can ensure to succeed also in rapidly changing global markets.”

Back in 2023, Antlitz predicted that margin parity between ICE and EVs could be reached as soon as 2025. The new target is now 2026, with the launch of the ID.2 supermini and a crossover derivative expected to match the profitability of the T-Cross. Beyond those two VW models, Cupra and Skoda will each launch their own versions, all targeting the €25,000 segment. A cheaper ID.1 is also on the way for 2027, priced at €20,000.

In case you’re wondering which VW Group EVs were the most popular in Q1 2025, here’s the top 10:

It’s worth noting that EV profitability isn’t the only factor impacting the Group’s financial health. Volkswagen continues to absorb costs tied to ongoing Dieselgate litigation and expenses related to increasingly strict CO₂ regulations in the European Union.