Volkswagen's joint-venture profits in China plunge over 90% in two and a half years, launching the largest restructuring in its history with 100,000 layoffs

[[**Volkswagen plunges into a severe crisis in 2026: profits from its Chinese joint ventures have plummeted by more than 90% over two and a half years, new-energy vehicle penetration stands at just 4.5%, and the company has been forced to launch the largest restructuring in its history—cutting 100,000 jobs, closing plants, and outsourcing software and vehicle-definition authority—yet its strategy of cutting prices to defend market share is squeezing profit margins even further, reflecting the structural failure of a traditional giant in the electric era.**

**Key points**

**1. China, the "profit cow," has run dry, shrinking by more than 90% in two and a half years**

Equity profits from Volkswagen's Chinese joint ventures fell from €2.621 billion in 2023 to just €184 million in the first half of 2026, with Audi's China profit dropping 74%. China's role has shifted completely from a "profit pool" to a "share funnel."

**2. Severe misalignment in the new-energy segment as the fuel-vehicle base shrinks rapidly**

New-energy vehicles account for only 4.5% of Volkswagen's sales in China, while overall new-energy penetration in China reached 65.2% over the same period and 83.9% for domestic brands. With the fuel-vehicle market shrinking rapidly, Volkswagen is almost absent from the new-energy sector, causing its sales decline (-26.1%) to exceed the overall market decline (-20.2%).

**3. Self-harming restructuring: surrendering definition authority, software and architecture**

Volkswagen plans to cut 100,000 jobs, close four German plants and axe half of its models on sale. At the same time, it is handing vehicle-definition authority to its Hefei team in China, abandoning in-house software in favor of purchasing Chinese solutions from XPeng, Horizon and others, and acknowledging a split global R&D structure between East and West. These measures buy development speed (24-month mass production) but sacrifice profit margins and brand premium.

**4. Price cuts to defend share create a vicious cycle, further eroding profits**

To sustain sales, Volkswagen has slashed retail prices sharply (for example, the Audi A6L bare-car price has fallen to 260,000 yuan), but the average profit margin in China's auto market has dropped to 1.5%. The price cuts preserve share but permanently damage brand premium, while the parent company's financial statements are dragged down by front-loaded costs and back-loaded profits, with its operating margin guidance already cut to 1%.

**5. The European home base faces the threat of Chinese brand penetration**

Chinese brands' share of the European market rose from 0.5% in 2021 to nearly 10% in 2026, with BYD, Chery and others posting year-on-year sales growth of over 100%. Although Volkswagen still holds a 25.6% share and channel advantages in Europe, its weakness in product-definition authority will not fix itself simply because the battlefield shifts. 2026-09-28 18:01 In a corner nobody is watching, Volkswagen—fallen back to where it was 16 years ago—is still struggling desperately in China. Kanjian Lab Quick Take

This article is from the WeChat public account: Kanjian Lab, author: Kanjian · Auto Observer

It is struggling in a corner nobody notices.

And the scale of this struggle is larger than you can imagine.

Wolfsburg plant's old thermal power station: four chimneys and the VW roundel on the wall. Photo · Wikimedia Commons/Richard Bartz (CC BY-SA 3.0)

On September 18, 2026, Volkswagen Group issued a profit warning: its full-year operating margin guidance was cut from 4.0%–5.5% to a maximum of 1%.

On September 21, Volkswagen was removed from the Euro Stoxx 50—the eurozone's most important blue-chip index. This was the first time in nearly 15 years that it had fallen off the list. According to Stoxx data, 30 ETFs tracked the index at the time, with combined assets of €59 billion; once the index was adjusted, those funds had to liquidate their Volkswagen holdings.

Over these three years, Volkswagen's share price has fallen by more than three-quarters from its 2021 peak, back to where it was 16 years ago.

In the same month, what was happening on the Chinese internet? New-car launches, smart-driving comparisons, another brand cutting prices by 20,000. Not a single trending topic belonged to this company.

It is struggling in a corner nobody notices. And the scale of this struggle is larger than you can imagine.

—Wolfsburg main plant: Volkswagen's largest production base in Germany and the entirety of this city. Photo · Wikimedia Commons/Carsten Steger (CC BY-SA 4.0)

We must first clarify the accounting basis, because many reposts skip this step.

Volkswagen's cut of its full-year 2026 operating margin forecast to a maximum of 1% is guidance, not an achieved result. In the first half of 2026, its actual operating margin was 3.8%—lower than the same period last year, but clearly not 1%.

So what is the roughly €10 billion? It is one-off special items. About €6 billion of that is a goodwill impairment on its Porsche stake; the rest is restructuring costs for early retirement plans and plant sales, as well as impairments on Chinese company assets. Excluding these, Volkswagen Group's underlying operating margin remains around 4%.

I am making this clear not to defend it—on the contrary, because only by getting the accounts straight can the judgment that follows hold up.

The real problem is not that €10 billion, but another line.

Equity profits from Volkswagen's Chinese joint ventures: €2.621 billion in 2023, €1.742 billion in 2024, €958 million in 2025, and only €184 million in the first half of 2026.

—In two and a half years, from €2.621 billion to €184 million. Chart by Kanjian Lab · Data according to Volkswagen Group financial report disclosure basis

In two and a half years, it fell from 2.6 billion to 184 million, a shrinkage of more than 90%. Among that, the profit contributed by Audi's China business dropped from 279 million euros to 73 million euros, a decline of 74%.

In other words: the meaning of the Chinese market to multinational automakers is shifting from a "profit pool" to a "share funnel." In the past, money was taken out from here; now, money leaks out from here.

We first need to make clear where it stood before it fell, otherwise the scale of this drop is incomprehensible.

At its peak in 2019, Volkswagen Group's global sales reached about 10.97 million vehicles. In China, it sold 4.23 million vehicles in a year—a figure that means: for every five new cars sold, one bore the Volkswagen badge.

In those years, its Chinese joint ventures contributed about 5.2 billion euros in profit a year, nearly 30% of the group's profit. It was once the world's largest automaker by revenue, with annual sales of more than 300 billion euros.

More important is what it once meant in China.

The Santana, Jetta, Passat, Audi A6L—the automotive awareness of several generations of Chinese people was shaped by Volkswagen. Its most famous advertising slogan in China was "Das Auto," meaning "this is the car." It was not just selling cars; it was defining what a good car is. The German chassis, the sound of the door closing, the solid materials—this entire set of aesthetic standards was brought by it.

—Santana: one car that shaped an entire generation of Chinese people's imagination of the "sedan." Photo · Wikimedia Commons/Dinkun Chen (CC BY-SA 4.0), license plate blurred

That is why what came next is so striking: the one who once defined the standards now has to bow its head and learn how to build cars.

Attributing Volkswagen's failure in China to "Chinese cars being cheap" is the easiest and laziest explanation. The right question is: why can Chinese cars be cheap?

First, the first layer.

In the first half of 2026, China's passenger car retail sales were 8.701 million units, down 20.2% year on year. Over the same period, Volkswagen delivered 971,000 vehicles in China, down 26.1% year on year—if counting only the joint venture basis, down 31.1%.

The overall market fell by two-tenths, Volkswagen fell by two-point-six-tenths. It fell 5.7 percentage points more than the market.

These two things are completely different in nature. The former is a cycle—the entire joint venture camp declined: Toyota China fell 17.1%, Nissan 15%, Honda 34.7%, Mercedes-Benz 28%, BMW 20.4%. But if everyone is falling and it falls more, then that is not a cycle. Volkswagen was not dragged down by the market; in a market that had already fallen by two-tenths, it additionally lost one-tenth of share. The former is a cycle; the latter is competitiveness.

Now the second layer, which is more fatal.

In Volkswagen's sales in China, fuel vehicles still hold a dominant position. Among the cars it sells in China, new energy accounts for only 4.5%. On the other side, in August the retail penetration rate of new energy passenger vehicles had reached 65.2%; among self-owned brands, the new energy penetration rate was 83.9%.

—The same market: Volkswagen 4.5%, China's passenger vehicles overall 65.2%, self-owned brands 83.9%. Chart by Kanjian Lab · Data according to disclosures by the China Passenger Car Association and Volkswagen Group

In a market where fuel vehicles are rapidly shrinking, relying on fuel vehicles to hold up while being almost absent from new energy—this cannot be explained by the four words "fierce competition"; this is a misalignment at the level of the track.

Next is the part this article most wants to make clear. Because many people think Volkswagen is lying flat, when the facts are exactly the opposite.

On September 3, 2026, the Volkswagen Group Supervisory Board unanimously approved the "2030 Future Plan." This plan is called the largest restructuring in its 89-year history, and also the largest ever in the global automotive industry.

What did it do?

Layoffs. On top of the previously announced 50,000 layoffs, another 50,000 were added, for a cumulative 100,000 by 2030, about 15% of the global workforce—almost one in every 6.5 people leaving. By the time the plan was announced, more than 37,000 employees had signed separation agreements. It expanded from frontline employees to middle management and logistics departments.

Plant closures. Hanover, Emden, Zwickau, and Audi's Neckarsulm—four German domestic plants were placed on the shutdown risk list; after the production tasks for existing models expire, "competitive future production assignments cannot be guaranteed."

—Emden plant: one of the four German domestic plants placed on the shutdown risk list. Photo · Wikimedia Commons/Frisia Orientalis (CC BY-SA 3.0)

Cutting products. By 2035, global models on sale will be reduced by about 50%—it currently has about 150 models in production.

Cutting capacity. Global annual capacity will be compressed from 10 million vehicles to 9 million; in China, the Nanjing, Ningbo No. 1, and Urumqi plants have already been closed, and capacity reductions have begun at Anting No. 1 and Changchun No. 1.

This is not an adjustment, but a surgical operation. Volkswagen CEO Oliver Blume said himself in August that the group's situation was "precarious," and that the entire German auto industry was experiencing "the worst turmoil in its history."

But what is truly worth mentioning is several other things. These things are not bloody, but they carry deeper meaning.

First: it handed over the power to define models from German headquarters.

Volkswagen built its largest R&D center outside Germany in Hefei—Volkswagen Group China Technology Co., Ltd.—with cumulative investment of 3.5 billion euros and more than 3,000 technical experts; including the joint ventures, total domestic R&D staff exceeds 7,000. This center has full forward vehicle development capability: architecture, battery, electronic controls, software, and testing and validation can all be completed independently in China.

This is the first time since Volkswagen's founding that it has delegated model decision-making and definition authority on a large scale from headquarters to a region.

Second: it gave up developing software itself.

Volkswagen's software subsidiary CARIAD posted an operating loss of 2.2 billion euros in 2025, with cumulative losses of roughly 6 to 7 billion euros over four years since its founding. It was originally meant to build an operating system for the entire group, but ended up as the darkest hole on the financial statements.

CARIAD has now abandoned its own independent R&D route. It has shifted to purchasing intelligent driving solutions from Chinese suppliers such as Horizon Robotics, XPeng, and Momenta, and has downsized itself into "a coordinator integrating external partners."

A giant paying to buy back capabilities it should have had is not rare in business history. But what it is buying is the lifeline of software, and the seller is one of its competitors in the Chinese market—that changes the nature of the matter.

Third: it uses a competitor's architecture to build its own cars.

Volkswagen invested about $700 million in XPeng, and the two jointly developed the CEA electrical/electronic architecture over 18 months. The first model based on this architecture rolled off the production line at Volkswagen's Hefei plant in Anhui; from signing the technical cooperation agreement to mass production, it took only 24 months. In the past, Volkswagen took four years to develop a new car from project approval to launch.

The cost is clear: this car uses an 800-volt platform, XPeng's intelligent driving system, and 1,500 TOPS of computing power. The architecture is not its own, and the intelligent driving is not its own.

Fourth: it split global R&D into "east-west division."

The Eastern Hemisphere is centered on China, adopts the CEA architecture and CMP platform, and cooperates with XPeng and Horizon Robotics; the Western Hemisphere relies on the joint venture with Rivian and is based on the SSP platform.

This is the first time Volkswagen has not pursued global uniformity in its software strategy, but instead acknowledged that the cars in these two markets require two completely different approaches.

Looking at these four things together, you will find a rather uncomfortable conclusion.

Volkswagen's struggle is not just effort—it has already handed over everything it can hand over: definition authority, software, architecture, global consistency. It handed these out one by one in exchange for time and speed. Brandstätter said that in 2026 Volkswagen will launch about 20 locally developed new energy models in China, "with a brand-new electric model hitting the market on average every two weeks."

The 3.5 billion euros for the Hefei R&D center is investment; the $700 million stake in XPeng is expenditure; behind every new model launched are R&D amortization, channel concessions, and longer payback cycles. And the market does not give it time to wait.

More fundamentally: using the Chinese supply chain to save market share in China is equivalent to handing over profit margins as well.

Building a car in 24 months saves time, not gross profit. On the contrary, because it must be fast, cheap, and benchmarked against domestic brands, it has to sell lower. Cutting prices to preserve share—share is preserved, but profit is gone—and according to Brandstätter himself, the average profit margin in China's auto market has already fallen to about 1.5%.

There is also a button that cannot be un-pressed once pressed.

Volkswagen's fuel-vehicle base in China is supported by brand premium. Once it starts cutting prices to preserve sales, that premium can never be recovered. The prices it sees at Chinese dealerships today are the result of its own pressing, and also the starting point it cannot refuse tomorrow.

The flames of the price war have long since spread beyond the Chinese market itself; they have reached the financial statements of foreign parent companies.

Mercedes-Benz GLB, with a guide price of 273,900 to 311,900 yuan, has seen bare-car transaction prices at dealerships fall to the 160,000-yuan level. Volvo S60, with a guide price starting at 306,900 yuan, has a main model bare-car price of 159,900 yuan, a discount of nearly 140,000 yuan—equivalent to half off. The bare-car price of the old Audi A6L has dropped to around 260,000 yuan, while the BMW 3 Series starts at 258,000 yuan.

This is not a promotional campaign; this is dealers staunching the bleeding. In the first half of 2026, overall fuel-vehicle channel inventory was close to 2.6 million units, with an inventory coefficient of 1.89; for joint-venture brands it exceeded 2.2—far above the healthy line of 1.5. Mercedes-Benz, BMW, and Audi lose an average of 20,000 to 30,000 yuan per new car.

An EY report gives colder numbers: German automakers' profits plunged 19.0% in the first half of 2026 to 13 billion euros, the lowest half-year level since 2020.

And Volkswagen China CEO Brandstätter said at the World New Energy Vehicle Congress in September that the average profit margin in China's auto market has fallen to about 1.5%.

What Volkswagen lost in China is returning to its doorstep in another way.

In 2021, Chinese brands' market share in Europe was 0.5%. By June 2026, that figure was close to 10%. BYD sold 174,100 vehicles in Europe in the first half of the year, up 145.5% year on year; Chery sold 155,800, up 305.8%; Leapmotor sold 56,000, up 558.3%. In Germany itself, Chinese brands' share climbed from 1.19% in 2023 to 3.80% in the first half of 2026.

—Chinese brands in Europe: 0.5% → close to 10%. Chart by Kanjian Lab. Data from the European Automobile Manufacturers' Association and public disclosures by individual companies

But I don't intend to write this as a wish-fulfillment piece, because the German camp still has cards to play: in the first half of 2026, the Volkswagen Group sold 1.849 million vehicles in Europe, a 25.6% share, and it is still rising; BMW's European sales rose 5.4% year on year, and Mercedes-Benz's rose 5%.

The resistance Chinese automakers encounter in Germany is not that "nobody buys them." The real resistance is this: local 50-year-old buyers are not enthusiastic about advanced driver assistance; a dealer who signs a lease is locked in for ten years, and nobody wants to be the first to eat the crab. This is not a product-strength problem; it is a market-structure problem.

So the real question is not "will Europe repeat China's story," but: what exactly did Volkswagen lose in China?

What it lost was not a few tens of thousands of sales, but the power to define the products of a generation that it itself failed to keep up with. That capability gap will not automatically close just because the battlefield has changed. In Europe, it still has its brand, its channels and its loyalty today—but users' definition of "what makes a good car" is being rewritten by the same logic, only more slowly.

Volkswagen's most famous advertising slogan is "Das Auto"—"This is the car." That line was once a declaration, meaning: Volkswagen is the standard for cars.

Now it has acquired a second meaning: this is the car we need to learn from.

Its fall back to where it was 16 years ago is not a return to the past; it is being left behind in the past. And in that corner where nobody is paying attention, it is still fighting desperately—cutting 100,000 jobs, closing four factories, axing half its models, handing product-definition authority to its Chinese team, and outsourcing software to competitors.

This is not the finale of a giant, nor the beginning of a comeback. It is the look of a company that once defined the rules, and after admitting that it is no longer the rule, still wants to stay at the table.

This article is based on Volkswagen Group financial reports and announcements, public information on index adjustments, China passenger car market statistics and media reports. The statement that "the full-year operating margin guidance was cut to a maximum of 1%" refers to the group's expected figure, not a margin already achieved; the roughly €10 billion is a one-off special item, and excluding it the underlying margin remains about 4%. The job cuts and production reductions are corporate plans, and the final actual scale remains to be seen.

Main sources

Sources: the Volkswagen Group official website, financial reports and announcements, index adjustment announcements, statistics from the China Passenger Car Association and the European Automobile Manufacturers' Association, an Ernst & Young research report, and public reports by media including Reuters and Yicai. Channel: Cars & Mobility

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