VW Profits Slide, 2026 Sales Forecast To Dip; Could This Weaken Union?

Volkswagen announced a 9.5% drop in Q2 operating profits and a revised 3% sales decline forecast for 2026, reversing earlier predictions. Despite this, investors reacted calmly. The automaker maintained its 2026 operating profit margin outlook amidst fierce competition in China and Europe, rising US tariffs, and geopolitical tensions. CEO Oliver Blume's proposal to cut 100,000 jobs and close four German plants faces strong union opposition, given their significant influence on the supervisory board. Analysts believe the dire financial situation could aid Blume in convincing unions of the necessity for painful reforms. VW's China profits are projected to fall sharply, and its software development capabilities remain a key concern for future profitability.

Volkswagen said operating profits dived 9.5% in the second quarter while sales for 2026 would slip by 3%, reversing an earlier positive prediction.

But investors reacted calmly, with the shares losing just over 1%. The view was disputed that a bit more bad news might help the company to persuade reluctant unions to accept the CEO’s plan to solve existential problems.

The company maintained its forecast that the operating profit margin for 2026 would range between 4.0% and 5.5%. The margin was 4.2% in the second quarter as profits slid 9.5% to €3.5 billion ($4 billion) compared with the same period last year.

The shares closed at €73.0, down just over 1%. The stock price is now 33% lower than it was at the start of the year. VW suffered from intensifying competition both in China and its European markets, higher U.S. tariffs, and the war in Iran. VW’s future depends to a large degree on the outcome of current negotiations in the European Parliament where the Industrial Accelerator Act seeks to reverse the recent decline in industrial competitiveness.

CEO Oliver Blume, at a board meeting earlier this month, proposed doubling job cuts to 100,000 and shutting four Volkswagen plants in Germany. Other proposals included simplifying the model line-up and cutting global capacity by one million to nine million. Talks with the unions continue and are unlikely to provide early results.

For Reuters Breaking Views, every cloud has a silver lining.

“This bloodbath, however, ​has an upside. Since news broke that Blume could slash the company's workforce, shares in the automaker have slumped 3%, a sign investors doubt his ability ​to win over the supervisory board, which is dominated by public-sector shareholders and union representatives. But if he can convince them that the company's future is genuinely in peril, they may be more willing to swallow painful changes,” Breaking Views columnist Aimee Donnellan said.

VW’s ownership structure makes it accountable to its employees, not its shareholders. The supervisory board has ultimate power with unions holding half of the 20 seats.

Despite all the problems, Blume still has big long-term ambitions for VW profits, but, according to Donnellan, the global car market is rapidly deteriorating.

“Last year, VW generated nearly €1 billion ($1.1 billion) worth of operating profit from China. But for the year ahead, Blume is forecasting earnings could fall as low as €200 million ($230 million) due to rising costs of electric vehicles, competition and weak volumes. In VW’s home market in Europe, Chinese rivals like BYD are flooding the market with cheaper, tech-laden battery cars. In the first six months of the year, Chinese players doubled their share of new car sales in Europe ​to 15%. That may force Western carmakers ​to either accept market share ⁠loss, or to cut prices. Meanwhile, unions may bend a little but are unlikely to allow him to keep coming back for more job cuts,” Donnellan said.

Investment researcher Bernstein saw some positives in VW’s latest numbers.

“Considering the current gloom surrounding the sector, the reiteration of the 4.0-5.5% group operating profit guidance corridor for FY26, after a 4.2% margin in 2Q26, was positive, even if revenue guidance was reduced,” Bernstein said in a report.

Bernstein isn’t so sure the latest news would help VW’s union talks.

“VW management is trying to walk the tightrope of reassuring investors while at the same time telling its workforce that the house is on fire and that painful cuts to capacity, requiring significant plant closures, are unavoidable. That is an almost impossible needle to thread and explains our (market perform) rating,” the report said.

Meanwhile U.K. headquartered investment researcher Third Bridge said because of the board structure, VW’s salvation won’t come from factory closures. VW’s “make or break” problems in China will be helped by its partnerships with XPeng and SAIC, which will improve its electric vehicles.

But questions remain over VW’s ability to develop software. The high profit contribution China once delivered is unlikely to return as competition from local brands intensifies.

Third Bridge said in a report experts it consulted are also sceptical that Volkswagen's core brand can reach its long-term margin targets of 6.0 to 6.5%. High labour costs and legacy manufacturing operations continue to weigh on profitability, making stronger pricing power and better products more important than cost-cutting alone.