The Volkswagen Group is in a difficult situation, just like all conventional automakers. The German powerhouse is being forced to sell more EVs in order to offset the CO2 emissions from its combustion-engine vehicles as a result of the European Union’s push toward electrification. If not, it runs the danger of incurring large fines for surpassing fleet goals.

The VW Group must balance earning money on more lucrative gas cars with controlling CO2 levels by selling electric vehicles to avoid fines, as it is well known that EV profit margins are currently below ICE levels. It’s a win-lose scenario until EVs are as profitable as ICE.

‘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],’ according to VW Group CFO & COO Arno Antlitz.

Fines Are Inevitable

Fines are inevitable in the interim. During the first-quarter results call, Antlitz stated that even with the ID, the company could have to pay up to €1.5 billion ($1.75 billion at current exchange rates) for exceeding emissions standards in the 2025–2027 period. The business predicts it won’t be able to fulfill the EU’s fleet-wide emissions target with the arrival of the ID. Polo this year and a smaller, less expensive electric vehicle scheduled for 2027.

‘€300 million–€400 million, €400 million–€500 million CO₂ cost per year. Basically, almost €1.5 billion for the three-year period’ declared Antlitz.

VW Group doesn’t expect electric vehicles to match the profitability of gas cars until the SSP platform launches late this decade. In the meantime, the company is working to narrow the gap between ICE and EV margins. The upcoming crossover version of the ID. Polo is estimated to achieve 70–80 percent of the T-Cross’ profit margin.

One In Five New Cars Sold This Year In Europe Is Electric

According to data released by the European Automobile Manufacturers’ Association (ACEA), in the first three months of this year, EVs accounted for 20.6% of new car registrations. Although one in five vehicles is electric, the VW Group claims that in order to cut fleet emissions and CO₂ fines, it needs to sell “more electric cars than the natural demand in Europe is”.

The demand for its EVs in Europe increased by 11.5 percent in Q1 2025, reaching 176,400 units, giving the VW Group cause for optimism. Approximately 25% of the cars sold in Western Europe lack combustion engines. Even then, EVs are not as profitable as comparable-sized combustion-engine cars, which VW would want to sell more of if it weren’t for the EU’s strict CO2 regulations.

• Read More: 10 Car Brands Under The Volkswagen Group After Selling The “Bugatti” Brand Through Porsche