Much like all traditional automakers, the Volkswagen Group finds itself in a challenging position. The European Union’s aggressive push toward electrification is compelling the German automotive giant to sell more electric vehicles (EVs) to offset the CO₂ emissions generated by its gasoline-powered vehicles. Failure to do so risks significant fines for exceeding fleet emissions targets.
However, it's widely understood that EV profit margins have yet to reach the levels seen with internal combustion engine (ICE) vehicles. This predicament forces the VW Group to balance generating revenue from more profitable gasoline cars with the necessity of keeping CO₂ levels in check by selling EVs, all to avoid penalties. Until EVs achieve profitability comparable to ICE models, it remains a lose-lose scenario for the company.
"We make a trade-off between money we lose due to the CO₂ fine and money we lose to the margin loss of the EVs [compared to combustion cars]," explained Arno Antlitz, VW Group's CFO & COO.
Despite their efforts, fines appear unavoidable. During the first-quarter earnings call, Antlitz stated that the company anticipates paying up to $1.75 billion for exceeding emissions targets over the 2025–2027 period. Even with the introduction of the ID. Polo this year and a smaller, more affordable electric car planned for 2027, Volkswagen projects it will still fall short of meeting the EU’s fleet-wide emissions target.
"We're looking at $300 million to $400 million, then $400 million to $500 million in CO₂ costs per year. This essentially amounts to almost $1.5 billion for the entire three-year period," Antlitz declared.
The VW Group doesn’t expect electric vehicles to match the profitability of gasoline cars until its advanced SSP platform launches later this decade. In the interim, the company is actively working to narrow the margin gap between ICE and EV models. For instance, the upcoming crossover variant of the ID. Polo is projected to achieve 70–80 percent of the T-Cross’ profit margin.
View Price on AmazonData released by the European Automobile Manufacturers' Association (ACEA) indicates that EVs accounted for 20.6 percent of new car registrations in the first three months of the year. Yet, even with one in five new cars being electric, the VW Group acknowledges it must sell "more electric cars than the natural demand in Europe is" to effectively reduce its fleet emissions and mitigate CO₂ fines.
Despite these challenges, the VW Group has reasons for optimism. Demand for its EVs in Europe surged by 11.5 percent compared to Q1 2025, reaching 176,400 units. In Western Europe, approximately one-fifth of the vehicles sold by the group are purely electric. Still, EVs currently aren't as profitable as comparable gasoline-powered vehicles—models VW would otherwise prefer to sell more of, were it not for the EU’s stringent CO₂ targets.
Industry analysts note that automakers worldwide are struggling to meet the upcoming 2025–2027 fleet emissions targets, a challenge that is only expected to intensify. Even stricter regulations are set to take effect in 2030, requiring car companies to slash CO₂ emissions by 55 percent compared to 2021 levels. By 2035, emissions will need to drop by a daunting 90 percent from 2021 figures.
Consequently, most automotive investments are now heavily focused on hybrid technologies and, more significantly, on electric vehicles. While the outright ban on new gasoline-powered cars from 2035 is no longer absolute, experts estimate there won’t be many new ICE-only models available for sale in nine years. The vast majority of new vehicles will be purely electric, with some offering various hybrid powertrains.
Regulations Are Disrupting The Car Industry
Source: motor1.com
