Volkswagen's profit rebound faces serious doubts as Chinese rivals pose an existential threat to Europe's largest carmaker. Despite a historic restructuring program, analysts warn that VW must either produce premium vehicles or achieve cost competitiveness to survive the onslaught of affordable Chinese electric vehicles and plug-in hybrids flooding European markets.

As VW prepares for its annual investor conference, analysts have slashed profit estimates, with HSBC cutting its 2026 operating profit forecast by 14 percent. The German group expects an operating margin of just 5.2 percent this year, down from 5.9 percent in 2024, while facing pressure from higher tariffs, energy costs, and material expenses. European rivals Mercedes-Benz and Renault also project lower margins.

VW's €6 billion free cash flow surprise in 2024, achieved through lower investments and R&D spending, has raised questions about the sustainability of its cost-cutting measures. The company plans to sell its Everllence division for €5-6 billion, but tensions with workers persist. With Chinese EV penetration rising and price pressure mounting, analysts argue VW must cut costs further to remain competitive in an increasingly challenging European automotive market.