Achtung! VW cuts sales forecast as auto industry remains 'extremely challenging'

Volkswagen ( VWAGY ) cut its full-year revenue outlook on Friday, claiming the environment for the auto industry as a whole was "extremely challenging."

The world's second-largest carmaker now expects 2026 sales revenue to be flat or down 3% compared to last year, down from a prior forecast of flat to 3% growth. It held its operating-margin target at 4.0% to 5.5% and left net cash flow and liquidity guidance unchanged.

The reset came alongside a mixed second quarter. Group sales revenue rose 2.0% to €82.4 billion ($93.9 billion) — but that gain was driven by its financial services division and higher pricing. Vehicle sales fell 9.7% to 2.04 million units, and production dropped 13.4% to 2.01 million.

VW's operating result (similar to EBIT) fell 9.5% to €3.47 billion ($3.96 billion), with operating margin falling to 4.2% from 4.7% a year ago.

"Applying disciplined cost management, we have managed to offset continued unavoidable headwinds in the double-digit billions," CEO Oliver Blume said in a statement. "At the same time, the environment for the automotive industry remains extremely challenging: geopolitical crises, trade conflicts, high regulatory requirements, volatile markets and intensified competition."

Automotive net cash flow swung to a positive €1.17 billion ($1.33 billion) in the quarter, from an outflow of €523 million ($596 million) a year earlier, but it was mostly the result of lower investment, reduced tax payments, and working-capital timing.

China continues to be a worrying trend for VW. While overall group deliveries fell 8.6% worldwide in the quarter, China sales plunged 36.6% to 424,300 vehicles, against gains of 7.7% in North America, 9.4% in South America, and 2.5% in Europe.

CFO Arno Antlitz said the Chinese total market is down 20% and warned that Chinese rivals "are increasing exports and thereby competitive pressure in Europe."

In addition, Volkswagen listed US tariffs, US trade barriers, and worldwide regulation among the "external forces" squeezing European producers, and named US tariffs as one of three drags, along with special items and weak China, on the half-year operating result.

Interestingly the net tariff hit in the first half was actually a small gain of €0.1 billion ($0.1 billion), but this came after tariff offsets and reimbursements at Audi and Volkswagen.

VW's 2026 outlook assumes the current tariff situation holds and excludes any escalation in the Middle East.

Among the brands, Porsche's operating result jumped to €692 million ($789 million) from €154 million ($176 million) a year earlier, and truck unit TRATON rose to €902 million ($1.03 billion). The core Volkswagen-Škoda-Cupra group slipped to €2.07 billion ($2.36 billion) from €2.34 billion ($2.67 billion).

The pressure is now reshaping the product line — with a number of vehicles under threat.

Hence VW's so-called Future Plan , a package of 12 initiatives tied to a "2030 target picture," in which, among other things, VW's model lineup will be gradually streamlined by up to 50%, concentrated on the most attractive market segments, with product complexity — trim levels, certain options packages — slashed by up to 75%.

Blume framed the quarter as proof the overhaul is "delivering results," citing a European order book up 12% and all-electric orders up more than 50%. But he caveated those comments with a warning that Volkswagen faces "an unprecedented risk scenario."

Pras Subramanian is the lead auto reporter for Yahoo Finance. You can follow him on X and on Instagram .

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