Volkswagen’s bankruptcy seems inevitable amid Chinese competition & higher costs

The numbers tell a story of a company in freefall.

Volkswagen AG, the world’s second-largest automaker and the crown jewel of German industry, is staring into an abyss. While executives cling to a $37 billion liquidity cushion and insist a turnaround is coming, the underlying math suggests a different outcome: bankruptcy is no longer a fringe theory but a looming possibility that six of the automaker’s own nine board members reportedly believe is a genuine threat.

The 89-year-old giant is being crushed in a pincer movement of its own making — eviscerated in its most profitable market by nimbler Chinese rivals, bled dry by punishing U.S. tariffs, and suffocated by the crippling labor and energy costs of its German homeland.

The Great Profit Collapse

Let’s start with the bleeding. In 2025, Volkswagen’s operating profit cratered 53% to $10.2 billion, with its operating margin collapsing to 2.8% — its worst performance since the Dieselgate scandal. Net profit plunged 44%.

The first half of 2026 has offered little respite. Revenue held nearly flat at $181.3 billion, but operating profit fell another 11.6% to just €5.9 billion, squeezing the operating margin down to a razor-thin 3.8%. Excluding special items, the margin was 4.3% — still a fraction of the 8% to 10% margins Chief Executive Oliver Blume has set as a target.

Chief Financial Officer Arno Antlitz, the man tasked with steering the ship, has been brutally honest: the current margin is “not sufficient in the long run”. That is a diplomatic way of saying the company is structurally incapable of generating the profits it needs to survive.

China: The Engine That Stopped

For a generation, China was Volkswagen’s golden goose.

The company built its modern prosperity on the back of Chinese demand, using profits from the world’s largest auto market to subsidize its sprawling, expensive European manufacturing operations. At its peak, China accounted for roughly four out of every ten vehicles Volkswagen sold globally.

That era is over. BYD overtook Volkswagen as China’s best-selling brand in 2024, and Geely pushed it into third place in 2025. The decline has accelerated into a rout. Volkswagen’s Chinese sales fell 25.9% in the first half of 2026, with the second quarter alone seeing a catastrophic 36.6% plunge. The company delivered just 971,150 vehicles in China during the period — a 26% drop.

The Chinese passenger-car market contracted by roughly 20% in the first half of the year, but Volkswagen is falling faster than the market itself. The business model that allowed Chinese profits to support Volkswagen’s German factories has broken down. China no longer subsidizes Wolfsburg. Wolfsburg is now exposed.

Tariffs: The Final Blow

If China is the knife, U.S. tariffs are the twist. President Donald Trump’s administration has imposed a 25% tariff on vehicles manufactured in the European Union, and Volkswagen is among the most exposed automakers due to its limited manufacturing capacity in the United States.

The tariffs have already cost the company billions. Volkswagen CEO Oliver Blume has stated that given the current tariff burden, “large additional investment cannot be funded”. The company has already halted plans for a new Audi factory in the U.S. as a direct result of the trade war.

Porsche and Audi, Volkswagen’s crown-jewel luxury brands, have no U.S. factories. That means every high-margin vehicle they ship to America is now subject to a punishing import duty, squeezing margins that were already under assault. The tariffs reduced European automotive sector EBIT margins by between 100 and 150 basis points during 2025 alone.

The Restructuring: Too Little, Too Late

Volkswagen’s response has been to slash and burn. The company is planning the most aggressive restructuring in its history, with reports indicating it will cut up to 100,000 jobs globally — roughly 15% of its workforce — and close four plants in Germany. The cuts go far beyond a prior agreement with the works council that had ruled out plant closures.

One Euro (€1) is worth about $1.15 to $1.16 US Dollars, based on recent exchange rates, although currency values change all the time.

The company is targeting €11 billion in annual cost savings by 2030 and plans to reduce its vehicle lineup by up to 50% and offering complexity by up to 75%. But these measures, however drastic, may not be enough. The company’s Altman Z-score — a metric used to predict bankruptcy — stands at 0.96, firmly in the “distress zone” that indicates a possibility of bankruptcy within the next two years.

The Liquidity Mirage

Volkswagen’s defenders will point to its cash pile. The company reported automotive net liquidity of €32.7 billion at the end of the first half and a net cash flow of €3.2 billion. On paper, that looks like a fortress.

But cash flow is a lagging indicator, and the underlying trends are terrifying. The positive cash flow was driven largely by lower investment, reduced tax payments, and working-capital timing — not by operational strength. The company’s market capitalization stands at roughly €37.1 billion, while analysts estimate its intrinsic equity value at approximately €103.8 billion. The market is effectively pricing in a massive “strafabschlag” — a penalty discount — because it expects large parts of Volkswagen’s industrial substance to be permanently impaired.

The Verdict

Volkswagen is not dead yet. But it is dying. The company that once defined German engineering excellence is now a case study in how quickly a legacy automaker can be undone by disruption, protectionism, and its own complacency.

The math is unforgiving. A 3.8% operating margin cannot support a 650,000-person workforce, a sprawling global factory network, and a transition to electric vehicles that requires tens of billions in investment. The restructuring will buy time, but time is running out.

Six of nine board members reportedly see an existential threat. They are not wrong. Bankruptcy is no longer unthinkable. It is becoming inevitable.