Volkswagen’s Mixed Q1: Profits Tumble but Cash Flow Surprises

Volkswagen's Q1 profit fell 28% to €1.56B, but strong cash flow of €2.0B beats expectations. China sales crater 20%, prompting a more radical restructuring.

Volkswagen’s first-quarter results paint a picture of two very different realities. While profits took a significant hit, the automaker delivered an unexpectedly strong cash flow that has caught the attention of analysts. Yet management is far from satisfied, warning that the company’s restructuring efforts need to accelerate.

Revenue slipped to €75.7 billion, down 2% from the prior year. Operating profit fell more sharply to €2.46 billion, well below analyst expectations, pushing the operating margin down to 3.3%. Net profit dropped 28% to €1.56 billion.

The earnings decline was driven by one-off charges totaling around €800 million. These included costs tied to ending production of the ID.4 electric vehicle in the US and the initial phases of cost-cutting programs.

The bright spot came from the balance sheet. Net cash flow in the automotive division jumped to €2.0 billion, a stark turnaround from the negative figure recorded a year earlier. Tight investment discipline and lower tax payments were the key drivers.

China drags on global sales

Volkswagen delivered roughly two million vehicles worldwide in the quarter, a 4% decline. While Europe and South America posted modest gains, sales in China cratered by 20%. The North American market also saw a contraction.

Chief Financial Officer Arno Antlitz pointed to intense competition as the main culprit. Chinese manufacturers such as BYD are increasingly encroaching on Volkswagen’s turf, even expanding into Europe. The company’s existing turnaround plan, Antlitz suggested, is no longer sufficient. Management is now preparing a more radical overhaul of the business model.

Core brand shines, Porsche struggles

Not all divisions suffered equally. The Core brand group, which includes Volkswagen, Skoda, and Seat, posted a 38% improvement in operating profit to €1.54 billion. Aggressive cost management lifted the unit’s operating margin to 4.4%, enough to offset depreciation and tariff-related headwinds in the US.

The picture was far less rosy at the premium end. Porsche’s margin slid to 7%, while the truck division saw its operating profit nearly evaporate.

Outlook intact, shares under pressure

Despite the weak start, Volkswagen is sticking to its full-year guidance. Revenue could grow by up to 3% in the best-case scenario, with the operating margin forecast to land between 4.0% and 5.5%. That outlook assumes international tariffs remain unchanged.

UBS analysts rate the stock as “Neutral” with a price target of €90, noting that the strong cash flow helps offset restructuring costs.

The market remains unconvinced. Volkswagen’s preferred shares traded at €85.90, down slightly, and have lost roughly 19% since the start of the year. On Thursday, the stock hit a fresh 52-week low of €83.76. The gap to the 200-day moving average is widening, suggesting a swift technical recovery is unlikely.

Shareholders are also facing a reduced dividend. The board has proposed a payout of €5.26 per share for the past financial year, subject to approval at the annual general meeting in mid-June.