Major automakers have spent decades trying to perfect the art of building their vehicles. In doing so, they’ve had to balance producing distinctive cars or trucks that one-up their competitors with the huge costs of sophisticated production lines, all while doing their best to maximize their revenues. A pivot to electrification was always going to upset that apple cart and create projection problems for these OEMs.
They’d need to invest a lot of upfront money simply to get the idea underway, and before they could think about calculating individual profits for each vehicle. But with many years of electrification now in the rear mirror and EVs part of the mainstream conversation, it’s time to really assess what individual profit margins are like. Volkswagen’s recent comments have brought that tension into sharper focus, especially when you consider that its ID.4 was not some kind of symbolic electric SUV, but intended to be a real, US-made volume product.
Volkswagen’s ID.4 Turned A Theoretical Problem Into A Real One
2024 Volkswagen ID. 4Volkswagen
2022 Volkswagen ID.4 Pro AWD Specifications
Motor
Dual-motor battery-electric powertrain
Transmission
Single-speed electric transmission
Drivetrain
AWD
Power
335 hp
Torque
403 lb-ft
The Volkswagen ID.4 was supposed to be a volume statement rather than any exotic EV, and VW was trying to sell it as a mainstream compact electric SUV within its future electric positioning. The ID.4 sat on VW’s MEB platform, and the company was aiming directly at the heart of the family car market. It assembled this SUV in Chattanooga, Tennessee for around four years, initially aiming at around 7,000 vehicles per month, and as an integral part of its North American electrification push.
The ID.4 represented a useful business case when assessing EV profitability. After all, it sat on a dedicated EV architecture and carried the badge of a company that has enormous global manufacturing experience. It also competed within a high-demand crossover segment, and VW built enough of them to crunch the numbers.
But the company’s own financial reporting suggests that lower-margin EVs are one of its key pressure points in its third-quarter reporting in 2025, and it’s pulled the plug, albeit temporarily, on the ID.4 itself. Volkswagen has also said that its weaker financial result was partly down to the ramp-up of lower-margin EVs, suggesting that it’s not as easy to sell electric vehicles in the same volume as their combustion counterparts, while still earning similar old-world margins.
EV Margins Are All Over The Map
2026 Tesla Model S front quarterTesla
In a broad analysis, EV margins range from healthy to deeply negative, depending on many factors including the automaker, production scale, the vehicle, the battery strategy, and the accounting measure in play. It does seem possible to generate some positive gross margin if the project itself is quite mature, but the legacy automaker could still lose billions in its EV division while relying on money from other lines. Some automakers might point to broadly positive profit numbers for their EVs, but once you take plant investment, engineering, software, incentives, and capacity costs into account, those numbers are nowhere near where they should be.
Tesla is one of the originators in this game, so it’s interesting to look at its 2025 annual filings. Here, we can see that its total automotive gross margin was 17.8%, down 0.6 percentage points from 2024 and 1.6 percentage points from the year before. That seems to show that EVs can generate meaningful gross profit at the scale that Tesla enjoys, but those margins can certainly be vulnerable to various pressures, like regulatory-credit revenue and incentives. And General Motors believes that its EV portfolio became variable-profit positive in the fourth quarter of 2024, meaning revenues and directly related benefits exceeded direct variable costs.
Meanwhile, Ford has not been as fortunate as others with its EV aspirations. Its Model e division reported a full-year 2025 EBIT loss of $4.8 billion, even though the figures were slightly better than the year before. The company’s public outlook for 2026 suggests another multi-billion-dollar Model e loss, even as it’s trying to structure cost reductions and carefully look at future affordable EVs.
While companies like Volkswagen are very tight-lipped about actual vehicle margins, a statement from VW CFO Arno Antlitz provides an interesting data point. Antlitz expects an improved architecture, cheaper LFP batteries, and a cell-to-pack layout to make any margin dilution effect smaller. The company’s ID. Cross vehicle might be able to achieve roughly 70% to 80% of the profit margin of a comparable gas model, and Antlitz seems to be framing that as progress over the current situation. That suggests that even the next wave of low-cost EVs may not match combustion margins fully.
VW also found out what can happen when significant incentives disappear from the picture. Due to the American administration’s One Big Beautiful Bill, a $7,500 federal credit disappeared. This may have significantly contributed to a big drop in ID.4 sales and that model’s demise, and it’s little wonder that some of these major automakers are trying to find their electric feet.
Batteries Are Cheaper, But Investment Costs Loom Large
Stellantis EV battery packsStellantis
Some people think that the reason for weaker EV margins is the sheer cost of the batteries, and this could represent a large part of the answer. While electrification can replace the engine, transmission, fuel system, and exhaust system of a conventional car, cutting down on those costs, it still adds back a lot of complexity. Items like electric motors, power electronics, charging hardware, battery management software, and the full battery pack dominate an EV’s cost structure. And while battery prices have improved significantly, that’s not the only answer when it comes to EV profitability.
Bloomberg NEF says that battery electric vehicle packs average $99 per kWh in 2025. Average LFP battery packs across all segments come to $81 per kWh, and nickel-manganese-cobalt packs average $128 per kWh. There are also some major regional differences to consider. The average battery pack price seems to be lowest in China at $84 per kWh, while in North America it’s 44% higher and in Europe as much as 56% higher.
So, a company that builds its EVs in North America or Europe may not be able to enjoy China-level battery economics. This may partly explain why battery-electric car production costs seem to be 30% lower in China than in other advanced economies, with as much as one-third of that difference attributed solely to the battery.
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Scale can also magnify advantages or weaknesses. Manufacturers need to make some pretty heady assumptions when they’re starting out on their EV journey. They’ll often have to plan their platforms, batteries, and plant costs around optimistic volume assumptions. But if those assumptions don’t quite pan out, each vehicle coming across the line carries more fixed cost. And if there’s a general slowdown across the entire market, the consequences can be significant.
In the first quarter of 2026, EVs may have accounted for 5.8% of US new vehicle sales. That was roughly the same as the previous quarter, but significantly, a long way below the 10.6% peak recorded in the third quarter of 2025. While falling battery prices may help, that’s only one piece in a very muddled jigsaw puzzle.
Hybrids Make The Profit Conversation More Awkward
2026 Toyota Corolla Hybrid front quarterToyota
Hybrid vehicles don’t require the same battery capacity as a full EV, and they can often integrate into existing production processes more easily. Consumers may view these vehicles more favorably, as they can get the better fuel economy they crave without changing how they use the vehicle. It’s little wonder that automakers find hybrids such an attractive combination and why these vehicles tend to further complicate the EV margin debate.
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For the fiscal year ending March 2026, Toyota and Lexus sold 4.62 million hybrid vehicles and 243,000 battery electric vehicles. Clearly, the mix was overwhelmingly hybrid-led, and Toyota was able to report a 7.4% operating margin for FY2026. Meanwhile, Honda also seems to be moving towards a more hybrid-heavy approach. It plans to launch 15 next-generation hybrid models globally by 2030 and try to reduce the cost of its next-generation hybrid system by more than 30% compared with its original 2023 approach.
While hybrids may not automatically represent better business than EVs, they do present a strong case in the marketplace. Automakers may find it easier to profitably sell a hybrid crossover to buyers who don’t need to rethink charging. And as full electric vehicles increasingly try to justify their extra capital intensity, that pressure will surely grow as incentives soften or even disappear.
The Next EV Breakthrough Must Come From The Factory Line
A new $21k EV has been teased for a 2027 launch by Volkswagen.Volkswagen Group
Although companies have invested a lot in the EV story to date, they now need to double down and push further toward profitability. Buyers are looking for faster charging, longer range, and better software, but OEMs will need to chase better margins through significantly improved platforms. And that means better battery chemistry, factory utilization, supplier leverage, and development discipline.
Volkswagen is pursuing this work through its future Scalable Systems Platform even though the platform is delayed until 2028. The company indicates that this platform could be central if it wants its EV margins to be fully comparable with combustion models, and it expects the new architecture to cut costs and improve the economics of those future EVs. Volkswagen may even use an ID.4 successor as its primary test bed as it tries to prove that it can engineer, source, assemble, and sell future EVs with some repeatable profit discipline.
The bottom line is that manufacturers must do better to fully capitalize on the idea of electrification. And while the first generation of mainstream EVs proved that electric family cars could be credible, the next platform phase surely has to close the gap between electric ambition and combustion-era profitability.
Sources: Volkswagen, Tesla, Ford, GM, BloombergNEF, Cox Automotive, IEA.
