Volkswagen EV Boom Crushes Profits: 38% Plunge from Tariffs and Margins Nightmare

Drama in the EV world: Volkswagen’s profits cratered 38% this half-year, as U.S. tariffs turn the green revolution into a red-ink mess.

Volkswagen Group reported a sharp decline in profits for the second quarter and first half of 2025, even as vehicle deliveries rose, highlighting the challenges of transitioning to electric vehicles (EVs) while facing higher U.S. import tariffs. This downturn underscores the economic pressures on automakers scaling up EV production, where lower margins on battery-powered models erode overall earnings.

EV Sales Growth Masks Profit Erosion

The company delivered 4.4 million vehicles in the first six months of 2025, marking a 1.3% increase year-on-year. Deliveries in the second quarter alone reached 2.27 million units, up 1.2%. Despite these gains, earnings after tax for the first half fell 38.5% to an unspecified total, with the second quarter seeing a 36.3% drop to €2.29 billion (about $2.69 billion), reports Auto Blog.

This contrast arises partly from the surge in EV sales, which carry slimmer profit margins than traditional vehicles. Volkswagen Group’s leadership acknowledged this shift.

“Our half-year figures present a contrasting picture: on the one hand, we achieved strong product success and made progress in realigning the company,” said Arno Antlitz, CFO and COO of Volkswagen Group. “On the other, the operating result declined by a third year-on-year – also due to higher sales of lower-margin all-electric models.”

Building on that, individual EV models like the Audi Q6 e-tron have shown sales growth, yet the broader trend drags down profitability. Automakers must invest heavily in battery technology and supply chains, often at the expense of short-term returns. This raises questions about balancing EV adoption with financial stability, especially as consumer demand for electric models grows but pricing pressures persist.

U.S. Tariffs and Brand Struggles Compound Losses

U.S. import tariffs emerged as a key factor in the profit slide, adding to operational costs. The company’s operating result for the first half dropped 32.8%, with the second quarter alone down 29.4% to €3.8 billion (approximately $4.4 billion). Sales revenue dipped slightly, by 0.3% for the half-year and 3% in the second quarter.

Premium brands within the group faced acute challenges. Audi’s U.S. sales declined 12% year-on-year, prompting provisions for restructuring that further strained finances. Porsche, another subsidiary, grapples with declining sales in major markets, leading to cost-cutting measures.

“Our business model, which has served us well for many decades, no longer works in its current form,” said Porsche CEO Oliver Blume.

These issues reflect broader regulatory and market shifts. Higher tariffs on imported components and vehicles increase expenses, potentially passed on to consumers or absorbed by manufacturers. For EV enthusiasts, this could mean elevated prices for models like Volkswagen’s ID series or Audi’s e-tron lineup, affecting affordability and adoption rates in the U.S. market.

Revised Outlook Signals Caution for EV Transition

Due to the second-quarter performance, Volkswagen Group adjusted its 2025 sales revenue forecast to match 2024 levels, abandoning an earlier projection of 5% growth. This revision highlights the unpredictable nature of the EV sector, where external factors like tariffs can swiftly alter trajectories.

The company is not alone in these struggles; Tesla reported a 16% profit drop in the second quarter, though its issues stem more from other factors. For EV owners and enthusiasts, Volkswagen’s results emphasize the need for supportive policies to ease the transition. Lower tariffs or incentives could bolster margins, enabling faster innovation in areas like range extension—often measured in miles (e.g., converting 400 km to about 249 miles) or charging infrastructure.

This situation also points to operational implications, such as streamlining production to improve EV profitability. Economically, sustained low margins might slow investments in new technologies, like advanced autonomous driving features or lighter battery packs that enhance efficiency. Regulatory changes, particularly around trade, will play a pivotal role in shaping the industry’s future.

Overall, Volkswagen Group’s half-year results illustrate the dual-edged sword of EV expansion: promising growth in sustainable mobility tempered by immediate financial hurdles. As the sector evolves, stakeholders must navigate these dynamics to ensure long-term viability.