VW celebrates 1 millionth EV but the costs are piling up

Volkswagen celebrated a milestone this week at its Zwickau plant in Germany: the production of its one-millionth electric vehicle, an ID.3 GTX. This factory produces six different EVs for various brands under the VW Group umbrella. VW managed to double its EV sales in Europe during the first three months of 2025, suggesting a strong consumer interest in electric cars, but this success comes with big financial challenges for the automaker.

The sticky point is the profitability of electric vehicles compared to their gasoline-powered siblings. Building EVs is currently more expensive, resulting in smaller profit margins for Volkswagen. As electric cars constitute an increasing portion of the company's sales – one in every five VW Group vehicles sold between January and March was electric – the overall profitability has decreased, dropping the margin to 4%.

And yet, despite the financial headwinds, Volkswagen sees a promising future with upcoming, more affordable electric models. The ID.2 is planned for release in 2026 with a target price of around $27,700, and is expected to improve profit margins. This compact EV, along with its SUV sibling and related vehicles from Cupra (Raval) and Skoda (Epiq), will use the new, cost-effective front-wheel drive version of Volkswagen's MEB platform. These vehicles will be built in Spain and could be among the first Western-produced EVs to achieve profit margins comparable to traditional internal combustion engine cars.

VW's latest financial figures expose the impact of the EV transition. The company announced that its earnings before tax fell by 40 percent to $3.44 billion in the first quarter of the year, even though overall deliveries grew by 1.4 percent. The company's finance chief, Arno Antlitz, blamed this decline partly on the growing share of electric vehicles in their sales mix.

The potential tariffs in the United States are complicating Volkswagen's financial outlook even more. VW, with its Audi and Porsche brands, lacks US-based production facilities, and so it faces exposure to these tariffs and has already warned its investors to prepare for a less favorable financial year than planned.

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