They say the first step to recovery is admitting you have a problem. And to the Volkswagen Group’s credit, it’s been admitting it has a problem for some time now.
New car sales slid in Europe last year. It’s never been especially strong in North America compared to the bigger players and it’s getting absolutely creamed in China. All of that is reflected in today’s first-quarter 2025 financial results, wherein the conglomerate reported a 37% drop in operating profit from the same period last year. But it now says it has a plan to fix things, and so far, signs indicate it’s going well. Yet while the VW Group’s EV sales are growing, they’re kind of dragging profits down with them.
I’m back from China and surprisingly not jet-lagged (although the day is young!) so I’m here to bring you Critical Materials, our morning roundup of auto industry and technology news. Also on deck today: Toyota makes a vertical integration play, and President Donald Trump’s new tariff plan may not offer the relief the sector wanted. Let’s dig in.
30%: Volkswagen Group Reports ‘Mixed Start’ To 2025
Photo by: Patrick George
Volkswagen ID. Evo, Shanghai Auto Show
“As expected, the Volkswagen Group experienced a mixed start to the fiscal year,” said Arno Antlitz, the Volkswagen Group’s COO and CFO, in a statement released this morning. Aside from the aforementioned 37% drop in profits, North American sales were down 2% and China sales were down 6%. But at least things are growing again in Europe, which is good news, and South America—the latter saw sales up a healthy 17%.
Also on the positive side, the VW Group is steadily increasing its electric vehicle sales across the board, and as we have reported before, it’s emerging as a surprising winner as European buyers turn away from Tesla.
Here’s the issue: EVs are still largely unprofitable for most automakers besides Tesla, Hyundai-Kia to some degree, and a handful of Chinese carmakers. So, as EV sales rise for VW, they’re bringing overall profits and profit margins down. “An operating margin of around 4% clearly shows that there is still a considerable amount of work ahead of us,” Antlitz said. (Margins of 6% or higher are usually considered good in the industry, even if that’s relatively low compared to other industries.)
But this also shows the challenge for the so-called traditional auto industry: it has to make EVs to prepare for the future, and fund them with the sales of more profitable gas cars, and gauge the right mix of each for different markets as customers move on from gas at different rates. At least VW’s trajectory seems to be improving. Every fifth car sold in Western Europe is now fully electric, and sales in Q1 more than doubled, the company reported.
Meanwhile, it’s leaning on partners like SAIC in China for new all-electric models designed to appeal to those customers. I saw a bunch in Shanghai, and they certainly would fit in with the various Xpengs, Nios, BYDs and even Teslas on the road. Will those customers respond?
60%: Toyota Makes Vertical Integration Play As It Seeks To Acquire Toyota Industries
Akio Toyoda presiding over the JAMA September 9 press conference 2
While in China, I went to a BYD press conference where executives explained how they created the system for five-minute EV fast charging, or Megawatt charging (so named because it delivers 1,000 kW of power.) BYD made all of the stuff to do that in-house: the cooling systems, the controllers, the new EV motors, the chargers themselves, the chips, all of it.
That’s a remarkable achievement that goes against the grain for most of the auto industry. The majority of them rely heavily on outside suppliers to make parts and components. But Tesla and the Chinese automakers are vastly more vertically integrated, allowing them to move more quickly on all fronts.
And that’s what I think Toyota Chairman Akio Toyoda is after by seeking to buy out a key parts supplier, Toyota Industries. This was reported last week but it’s been on my mind since China, and I think it’s worth addressing here.
Toyota Motor Corporation, the carmaker, currently holds a 25% stake in machine and parts-maker Toyota Industries; confusing, I know, but both were started by the same family and the carmaker actually spun out of the latter.
So why would the child buy out the parent? My theory is that it would give Toyota much more of an edge on China-like vertical integration, allowing it to make key components for EVs and other future-facing technologies more quickly and potentially at lower prices. There are other issues at stake here too. Toyota Industries makes engines, and many were certified incorrectly last year, leading to a kind of mini-Dieselgate scandal in Japan.
Here’s Automotive News:
A possible move to reorganize Toyota Industries comes against a backdrop of Toyota Group companies loosening their cross-shareholdings, to free capital for investment in new technologies.
Fellow group suppliers Denso Corp. and Aisin Corp. have sold off shares in group affiliates in recent times. Denso, for instance, sold its stakes in both Aisin and in Toyota Industries. Toyota Motor owns about 24 percent of Toyota Industries, while Toyota Industries owns 7.5 percent of Toyota Motor.
Toyota Industries, which has former Toyota Motor director and R&D chief Shigeki Terashi as its chairman, said it is looking at ways to improve its “enterprise value” and “capital efficiency.”
It may not be the sexiest news you’ll read all day, but if it helps Toyota move as fast as BYD can, you get why it’s desirable.
90%: Auto Industry Tariff Relief May Not Be So Helpful After All
Photo by: InsideEVs
Last but not least: is the American auto industry really in for a form of tariff relief from Trump? Not so fast, reports the Detroit Free Press:
One analyst, however, cautioned that the impact of auto tariffs, even with the relief, amounts to a “gut punch” for the industry.
“It’s akin to having a car accident and saying, ‘Oh good, it’s not totaled, but it’s still $20,000 worth of damage,’ ” said Dan Ives, managing director of autos at Wedbush Securities.
The executive orders signed April 29 put in place a complicated system of breaks on certain imports of auto parts and components for the next two years, but it gives Detroit’s automakers some relief from what Trump earlier had ordered, which were 25% tariffs on all imported autos which began in April and another 25% on all auto parts set to begin by May 3.
Meanwhile, China races ahead with EVs and other advanced technologies, while the car companies that operate in and serve our market don’t even know what to build, where to build them and where to price them. We’re in for a bad, bad time.
100%: Can VW’s New Plan Succeed?
Photo by: Patrick George
Audi E5, 2025 Shanghai International Auto Show
Are we seeing the beginnings of a comeback for the VW Group, or are its current problems too insurmountable? Where do you see things going next for the conglomerate? Sound off in the comments.
Contact the author: patrick.george@insideevs.com
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