ii view: China makes Volkswagen downgrade sales target

First-half results to 30 June

• Vehicle sales of 4 million, down from 4.4 million in H1 2025
• Revenue down 0.2% to €158.1 billion (£134 billion)
• Operating profit down 11.6% to €5.9 billion
• Q2 operating margin of 4.2%

Guidance:

• Now expects annual sales of between -3% to unchanged, down from a previous unchanged to up 3%
• Continues to expect a annual profit margin of 4% to 5.5% versus 4.2% in Q2

Chief executive Oliver Blume said:

“The realignment of Volkswagen Group over the past three years is delivering results. Our order book reflects a positive trend: more than 70,000 orders for our new Electric Urban Car Family around the ID. Polo in just a few weeks – and orders for all-electric vehicles in Europe increased by more than 50 percent in the second quarter.

“At the same time, the environment for the automotive industry remains extremely challenging. 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.”

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ii round-up:

Volkswagen AG (XETRA:VOW) today downgraded full-year sales expectations, weighed down by challenges in China, although it maintained hopes for growth in profit margin.

Estimated sales for 2026 of between down 3% to unchanged is less than management’s previous forecast of unchanged to up 3%. A 37% fall in Chinese second-quarter sales failed to counter growth elsewhere. A forecast full-year operating profit margin of between 4% and 5.5% compares with 4.2% in the second quarter.

Shares in the German giant fell 1% in European trade having come into this latest news down by close to a third so far in 2026. Fellow German car giant Mercedes-Benz Group AG (XETRA:MBG) is down by a quarter during that time. The German Dax index is up by around 1% year-to-date.

Volkswagen owns brands including Skoda, Audi, Cupra, Bentley, Lamborghini and Ducati, as well as retaining a major share stake in Porsche Automobil Holding SE PRF PERPETUAL EUR 1 (XETRA:PAH3).

Vehicle deliveries of 4 million during the first half to late June was down from 4.4 million in H1 2025. Revenue for the period of €158.1 billion (£134 billion) declined 0.2%, with operating profit falling 11.6% to €5.9 billion.

Profit during the period was hit by a €0.5 billion charge relating to the halting of production in the US of it ID.4electric sports utility vehicle.

VW’s continued restructuring saw employee numbers fall to 652,000 as of late June, down from 663,000 a year earlier.

ii view:

Began in 1937 and headquartered in Wolfsburg, Germany, VW today sell products in more than 150 countries. A total of 111 production plants are located across 16 European countries and 10 nations throughout the Americas, Asia and Africa. The group’s 12 brands cover all segments, from motorcycles to supercars and heavy trucks. As well as a shareholding in Porsche, other interests include a joint venture with US EV maker Rivian Automotive Inc Class A (NASDAQ:RIVN) and a stake in China’s owner of the MG brand SAIC.

For investors, outlook uncertainties include hindered Chinese consumer demand and high competition as well a recent renewal of the US trade tariff conversation. Low-cost carmakers in China have been targeting greater sales in Europe and the US. A restart of the war in the Middle East and higher energy prices is again overshadowing future production costs, as well as inflation and interest rate policies, while industry-wide doubt about the dominant fuel type going forward has left VW still covering all bases.  

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On the upside, a diversity of brands, product types, and geographical regions continues to see challenges for some countered by strengths elsewhere. Many tough restructuring decisions made in order to reduce costs have already been taken. A focus on new EV models is showing signs of aiding customer demand, particularly in Europe, while a forecast dividend yield of over 5% is not to be forgotten.  

For now, a still challenging outlook continues to offer grounds for caution, and shares remain close to a 16-year low. However, VW is an industry giant with a consensus analyst fair value estimate above €120 per share. It will also likely remain of interest for bargain hunters, although the timing and scale of any recovery remains difficult to predict. 

Positives:

• Strong brand names including Audi and Volkswagen
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• High EV competition

The average rating of stock market analysts:

Buy