Volkswagen has downgraded its sales and revenue outlook for 2026 due to a sharp decline in demand in China, intensifying pressure on the German automaker to implement an extensive cost-cutting strategy that could involve up to 100,000 job losses globally. The company, the world’s second-largest carmaker by volume, now expects its sales revenue to decrease by up to 3 percent this year, a significant reversal from a previous forecast projecting a 3 percent increase on 2025’s €321.9 billion.

The revised outlook stems largely from a substantial slump in the Chinese market, where Volkswagen’s unit sales fell by more than 31 percent in the first half of the year. This decline contrasts with the company’s sales growth in Europe and North America and has forced a reassessment of the group’s global prospects. China, once Volkswagen’s most profitable market, has become increasingly competitive as domestic manufacturers, including BYD, Geely, SAIC, and Chery, have expanded aggressively both within China and into European markets. These Chinese competitors collectively held an 11.2 percent share of the European market in June 2026, up from 7.5 percent the previous year.

Volkswagen’s second-quarter financial results reflected these challenges, with operating profit falling 9.5 percent to €3.5 billion, below analyst expectations. Despite the earnings setback, the company maintained its operating margin target of between 4 percent and 5.5 percent for the full year. Volkswagen’s revenue rose slightly to €82.4 billion in the quarter, from €80.8 billion a year earlier, but profit dropped by nearly one-third compared with 2025.

The company’s chief executive, Oliver Blume, acknowledged the “extremely challenging” environment faced by the automotive industry, citing geopolitical tensions, trade conflicts, and heightened regulatory demands. He described the current scenario as an “unprecedented risk” phase in Volkswagen’s transformation, which aims to make the business “more innovative, faster, more attractive and robust.” Blume emphasized the need for a significant restructuring that includes halving the number of vehicle models and selling non-core assets.

Central to Volkswagen’s turnaround plan is a contentious cost-cutting programme that has encountered opposition from union representatives and the company’s supervisory board. The plan could result in the closure of four production sites in Germany and the elimination of up to 100,000 jobs globally—double the number originally negotiated with unions. Most of the proposed reductions are expected in administrative roles. Despite union resistance, Blume expressed optimism that an agreement would be reached within the year.

The restructuring aims not only to respond to rising low-cost competition from Chinese manufacturers but also to address Volkswagen’s costly strategic errors in transitioning to electric vehicles, including a €500 million charge linked to halting production of the ID.4 electric model in the United States amid reduced government support.

Analysts have noted the difficulty Volkswagen faces in balancing investor reassurance with communicating the urgency of its internal challenges. One observer described the situation as the company attempting to “walk the tightrope” between these competing demands.

Volkswagen’s shares declined following the earnings announcement and have dropped approximately 66 percent over the past five years. The company employs over 650,000 people worldwide across brands including Audi, Bentley, Skoda, Seat, Porsche, and Cupra, highlighting the far-reaching impact of the planned restructuring on the automotive sector and global workforce. A decision on the restructuring measures is expected later this year after further negotiations with union leaders.