Volkswagen Plans to Slash Production by One Million Units to Counter Profit Slump

Volkswagen Group, once the world's top-selling automaker, is undergoing a major restructuring to counter a sharp financial slide. CEO Oliver Blume has confirmed that the group may slash production capacity by as much as one million units. The move is a clear attempt to tackle overcapacity and get the company's long-term costs back under control.

Drastic Profit Slump: Lowest Margins in a Decade

Volkswagen's 2025 financial report highlights a precarious position as the automaker faces its lowest margins in a decade. Operating profit plummeted 53.5% to €8.868 billion, causing margins to collapse from 5.9% to just 2.8%. While overall revenue held steady, these thinning margins underscore the immense weight of fixed costs as the group navigates its structural transition.

The Overcapacity Crisis: Tackling Underutilized Factories

Blume noted that the current production scale no longer aligns with market demand. Currently, Volkswagen's global installed capacity exceeds 12 million units, while the group targets a more sustainable level of 9 million units.

The European Struggle: Utilization rates at European plants average only 55%, well below the 75% industry break-even threshold. 

Extreme Cases: The Osnabrück plant in Germany is operating at a mere 30% capacity, representing a significant drain on corporate resources.

Weakening Global Demand: China and North America

The first quarter of 2026 saw a decline across core markets.

China: As Volkswagen's largest market, deliveries dropped 14.8% to 548,700 units. The rapid rise of local Chinese brands and ongoing price wars have eroded the group's dominance in the internal combustion engine (ICE) segment. 

North America: Sales dipped 13.3% due to shifting consumer demand and mounting tariff-related pressures.

The Roadmap to 2026: Electrification Strategy

Despite these cuts, Volkswagen is doubling down on its new energy vehicle strategy to secure its future. In 2026, the group plans to launch 20 new NEV models in China alone, leveraging its partnership with XPeng to enhance its electronic and software architecture (CEA). The ultimate goal is to achieve €6 billion in annual cost savings by 2030.