VW's Volume Brands Grew Profits 38%, Its Sport Luxury Division Sank 22%

• Volkswagen profit drops 14% as tariffs and weak demand hit hard.
• China and US struggles drag down sales and overall performance.
• Core brands improve but Porsche luxury division faces pressure.

Volkswagen says it's making progress, but the numbers suggest it's still fighting an uphill battle. The German giant cut costs and improved cash flow, yet profits and sales both moved in the wrong direction.

In the first quarter, Volkswagen Group reported revenue of €75.7 billion ($88.3 billion), down slightly year over year, while operating profit dropped more than 14 percent to €2.5 billion ($2.9 billion). That's not catastrophic, but it's not what VW wanted either.

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The company is blaming a mix of factors. Tariffs are biting hard, especially in the US, while demand is softening in key markets. China is the biggest headache, with deliveries there down a hefty 20 percent. North America didn't help much either, slipping by 9 percent.

There are some positives besides the imminent arrival of hot new products like the ID. Polo. VW slashed overhead costs by around €1 billion ($1.17 bn) and turned its automotive cash flow positive at €2 billion ($2.34 billion), a big swing from last year. Orders in Europe are also up around 15 percent, suggesting customers still like what VW is launching there, even if the Chinese aren't so keen.

Looking at the divisions gives a clearer picture of what's working and what isn't. The Core group, which includes volume brands like VW, Skoda, and Seat, actually had a strong quarter. Operating profit jumped to €1.5 billion ($1.75 billion), up 38 percent, thanks to better cost control and improved product pricing.

VW Group Financial Results Q1

The Progressive group, home to Audi, Bentley, Lamborghini and Ducati, saw revenue drop but still managed to grow profit slightly. Things get tougher in the Sport Luxury division, though. Porsche's profits sank by 22 percent as sales volumes dropped almost 15 percent and tariffs took their toll. And VW's software arm CARIAD, whose mess-up caused the delay of the Macan Electric a couple of years ago, is still losing money, although losses are shrinking as development progresses.

Overall, VW is clearly tightening up its operations, but management admits it needs to do more. Arno Antlitz, CFO and COO of VW Group, said the company's operating profit "remains far too low at 4.3 percent" and that "the planned cost reductions are not enough."

Antlitz claims Volkswagen will spend the coming months stripping out complexity from its product portfolio, tech platforms and the entire decision making process to make more savings. We'll have to wait to see what that entails, as VW hasn't given details, but it could mean some cars or variants get the axe, while others might see their production bases relocated to cheaper countries.

VW Q1 By Brand Group