There is a sentence buried in the Volkswagen Group's first quarter earnings call that deserves to be read slowly.
"We make a balance between money we lose due to the CO2 fine and money we lose to the margin loss of the EVs."
That is Arno Antlitz, Volkswagen's chief financial officer and chief operating officer, explaining the company's strategy toward European Union emissions regulations. Not denying the fine is coming. Not claiming the company will meet its targets. Acknowledging that it has done the maths and chosen to pay.
The fine structure is precise and mechanical. The EU requires each manufacturer to achieve a fleet average CO2 output below a set target, calculated per vehicle sold and weighted by the weight of those vehicles. For 2025 the threshold drops to approximately 93.6 grams of CO2 per kilometre. For every gram above that limit, the manufacturer pays €95. Per car sold. Across an entire year's worth of European sales, one gram above the threshold costs Volkswagen tens of millions of euros. Antlitz's estimate of €400 million to €500 million per year reflects a calculated shortfall the company has looked at directly and decided to absorb.
Why Volkswagen is making this choice
The maths that drives the decision is specific to the current moment in the EV transition.
Volkswagen's existing generation of electric vehicles generates approximately 30 percent less profit per car than an equivalent combustion model of the same size. The ID.4, the ID.3, the Audi Q4 e-tron: each one sold puts less money on the table than the combustion cars VW would otherwise prefer to sell in that segment.
To close the gap between its current fleet CO2 average and the EU target, Volkswagen calculates it would need to raise its EV share in Europe from around 13 percent of sales to approximately 25 percent, according to analysis by UBS cited in Motor1. Doing that requires either selling EVs at prices that attract buyers who would not otherwise choose them, which means accepting margin reductions, or building demand through aggressive pricing, which amounts to the same thing. Either path costs money.
Antlitz put the balance plainly: the company has to decide between the money lost to CO2 fines and the money lost through the reduced margin on each EV sold above what the market would naturally absorb. For the 2025 to 2027 cycle, the calculation has come out in favour of paying the fine.
Some good news does exist on the EV side. VW Group demand for electric cars in Europe rose 11.5 percent in the first quarter of 2026 compared to the same period last year, reaching 176,400 units. In Western Europe, approximately one in five of the vehicles the group sells now has no combustion engine. The direction of travel is right. The speed is not.
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The wider financial context
€1.5 billion is a large number. In the context of VW Group's total financial position, it is also worth calibrating.
The group generated €322 billion in revenue in 2024 with a total profit of €8.9 billion. Those margins, as Car Buzz noted, are not large enough to comfortably sustain development of the next generation of vehicles. The emissions fine does not exist in isolation. Antlitz also confirmed that US tariffs are costing VW approximately €4 billion per year at current rates. For a company managing thin margins across an enormous portfolio, €1.5 billion in regulatory fines added to €4 billion in tariff exposure in a single cycle represents a serious structural pressure.
The comparison to Dieselgate, which cost VW more than €31 billion by 2020, is not entirely unfair to make. It is also not entirely fair. The current situation is not concealment or fraud. It is a manufacturer publicly acknowledging in an earnings call that it will miss a regulatory target, explaining why, and quantifying what it will cost. That is a different kind of corporate disclosure.
The resolution in the medium term is the Scalable Systems Platform, VW's next generation EV architecture, which the company says will close the profitability gap between electric and combustion vehicles. That platform does not arrive until later this decade. For the 2025 to 2027 window, €1.5 billion is the bridge.
What changes in the meantime
For the US market, Antlitz confirmed that production of the ID.4 at VW's Chattanooga, Tennessee plant has ended. The model will remain available in America but will be built overseas and imported in small volumes. The decision reflects a broader retrenchment from VW's American EV ambitions following tariff pressures and softer demand.
In Europe, VW is hoping the upcoming ID.2 and ID.1 models at lower price points will shift the fleet average meaningfully before the 2027 deadline. Both sit in segments where EV demand is growing fastest and where the transition away from combustion engines is most advanced. Whether they arrive quickly enough to reduce the total fine below the current €1.5 billion estimate is the question Antlitz cannot yet answer.
The €95 per gram per car structure means every additional EV sold materially improves the calculation. It also means the EU's penalty mechanism is functioning precisely as designed: creating a financial incentive so substantial that even a company with €322 billion in revenue treats it as a strategic variable rather than a rounding error.
Volkswagen has concluded it is cheaper to pay. The EU designed the system so that conclusion would eventually stop being true. The race is whether the cars arrive before the company's patience runs out.
Sources:
- Motor1 — VW Group Risks $1.7 Billion Fine For Missing Emissions Target
- Car Buzz — Volkswagen Is Facing Major Emissions Fines, Again
- Autoblog — Volkswagen Could Pay $1.75 Billion in Fines as EV Sales Fall Short of Targets
- Motor1 — VW, Mercedes etc: High fines threatened due to CO2 limits
- Volkswagen Group first quarter 2026 earnings call — Arno Antlitz quoted directly