Environmental and Social Risks
For this risk category, the likelihood of occurrence is classified as medium (previous year: medium) and the potential extent of damage is classified as medium (previous year: medium).
The most significant risks from the QRP arise from non-fulfillment of CO2-related requirements and transformation-related programs for the future.
Risks of employee relations
Our high fix cost base and the employment, legal and social environment may continue to put pressure on our market position compared to our competitors.
In the course of our business activities, we depend on recruiting highly qualified personnel at competitive cost levels and retaining them over the long term. A significant portion of our value creation is located in Europe. Especially in economies affected by demographic change, it may become increasingly difficult to find suitable personnel. Regulatory interventions may increase the cost of labor. An above-average rise in personnel expenses would impair our competitiveness.
Our competitors, particularly foreign companies operating under more flexible conditions, may pose a risk if they are able to realize a significantly lower cost base. For the majority of employees at Volkswagen, collective bargaining agreements apply, and freedom of association is ensured.
Our operations have in the past been, and may in the future be, affected and impacted by industrial actions. We may not be able to conclude new agreements before the end of the applicable peace obligation, or renegotiate existing agreements on terms and conditions that we consider to be reasonable.
We counter the risk that new collective bargaining agreements in Group companies are not compatible with our global cost targets by consistently monitoring the targets agreed between the parties of the collective bargaining agreement and with an internationally coordinated management of the collective bargaining negotiations taking place worldwide in the Volkswagen Group. In addition to the workforce reductions pursued in 2025, further measures to reduce personnel costs were agreed upon. Since the return to a single company collective agreement (Haustarifvertrag) at Volkswagen AG in 2024, the complexity of collective bargaining topics has been significantly reduced.
We employ a range of instruments to manage economic risks, market and competition changes, and shortages of supplied components, enabling us to remain flexible in personnel deployment while simultaneously offer job security even when faced with fluctuating order volumes. Time accounts, flexible shift models, extra shifts, closure days and legally regulated options such as Kurzarbeit (short-time working) as well as temporary workers are used.
Qualified personnel risks
Our success depends substantially on our ability to continue to attract qualified employees.
Limited availability of key employees due to changed market conditions, turnover, targeted recruiting by competitors or other employers, or due to age can result in a major loss of expertise. The industry is highly competitive for skilled professionals, especially in automotive, electrical engineering, chemistry, IT and R&D. If our staff lack the necessary skills, we might fail to meet our technological and digitalization goals.
We mitigate the risk of a lack of expertise by providing comprehensive training and development opportunities for all employees, with a particular focus on international locations to address technological and industry changes. To counter potential shortages of skilled specialists, especially in digitalization and IT, we align our recruitment tools, engage with talent early, and offer innovative training programs as well as cooperations with universities and business schools. We also enhance our attractiveness as an employer to secure talent in key fields. Additionally, we address risks from employee turnover and loss of expertise through targeted succession planning and training.
In addition, we use our global positioning to build competencies that are critical for the future in countries that are not characterized by talent shortages.
Environmental and other emission regulations
Our business operations worldwide are subject to comprehensive, onerous and constantly changing environmental regulatory and legal requirements that are not always homogeneous.
We are subject to numerous regulatory requirements on the national and international level. This relates to the protection of the environment, pollutant emissions and fuel consumption, health and safety as well as the use, handling and storage of various substances and also includes restrictions or prohibitions on the use of chemicals, heavy metals, biocidal products and volatile organic compounds emissions. They are subject to the manufacturing process and their use in our products, including the use of parts provided by suppliers, as well as in car-related infrastructure designed or built by the Volkswagen Group.
The various regulatory requirements we comply with are not always homogeneous, and we are subject to increasing governmental scrutiny and enforcement. This applies in particular to regulatory requirements for the protection of the environment, health and safety. For example, vehicles are particularly affected by regulatory requirements concerning fuel economy, CO2 and other emission limits (such as NOX), as well as tax regulations in relation to CO2 or fuel consumption-based motor vehicle tax models. Different requirements of various countries prevent worldwide marketing of vehicles with the same specifications.
The costs of compliance with regulatory requirements are considerable, and such costs are likely to increase in the future.
In order to comply with emissions standards, we continuously tailor our range of vehicle model and drivetrain variants to the relevant thresholds in each market. These requirements may lead to higher costs and consequently to price increases and declines in volumes. We invest considerable resources in a product compliance management system. These measures aim to avert or minimize compliance risks.
Failure to comply with applicable regulations could lead to the imposition of penalties, fees, damages, recalls, restrictions on or revocations of our permits and licenses (including vehicle certifications or other authorizations that must be in place before a particular vehicle may be sold in the authorizing jurisdiction), restrictions on or prohibitions of business operations, reputational harm and other adverse consequences.
Regulatory risks
We are subject to governmental regulations in various jurisdictions.
Laws in various jurisdictions include occupant safety, environmental impact, sustainability-related disclosures (including environmental, social and governance issues), automobile design, manufacture, research and development, supply chain, marketing and after-sales services or measures undertaken to encourage customer loyalty to the vehicle and brand following sale, including vehicle recycling, vehicle registration and operation regulations and activities in the financial services sector. The breadth and complexity of the new requirements present implementation challenges.
Volkswagen maintains a selective distribution system. Within the European Union, dealers and service partners are selected – where permissible – by using qualitative and quantitative-qualitative criteria in accordance with the provisions of EU Regulations 461/2010 and 720/2022. The previously relevant EU Regulation 330/2010 was revised by the European Commission and replaced by the new, successor EU Regulation 720/2022, which entered into force on June 1, 2022. As things stand at present, this revised EU regulation does not require any changes to be made to the current distribution system of Volkswagen AG. However, Volkswagen AG is still required to observe the market situation and, if its market share ends up exceeding 40%, to review the quantitative-qualitative distribution system and adjust it as required. On April 17, 2023, with its Regulation (EU) 2023/822, the European Commission extended the block exemption for the vehicle sector (MVBER – Regulation (EU) 461/2010) by another five years. The block exemption would have technically expired on May 31, 2023. However, in view of the aforementioned extension, the European Commission also issued Communication (EU) C/2023/2335 amending the “Supplementary guidelines on vertical restraints in agreements for the sale and repair of motor vehicles and for the distribution of spare parts for motor vehicles” that accompany Regulation (EU) No 461/2010 to allow for the environmental and digital transformation taking place in the vehicle sector. In the updated guidelines, the European Commission no longer focuses solely on “technical information”, but refers in general terms only to “input”, which, in addition to technical information, will in future include tools, training and vehicle-generated data. The guidelines also expressly clarify that if vehicle manufacturers unilaterally withhold a particular input, including vehicle-generated data, this may be considered abuse under Article 102 of the TFEU. Parallel to its obligation to provide data, Volkswagen AG is required to fulfill its obligation to comply with cybersecurity requirements. It is not yet possible to predict whether and to what extent Volkswagen AG will be affected by these types of claims from independent operators and what economic impact these claims may have. Competition law requirements, including the Block Exemption Regulation 461/2010 and EU Regulations 2018/858 and 2021/1244, aim to ensure and promote effective competition in the motor vehicle aftermarket. Volkswagen AG, too, is exposed to this competitive pressure and associated risks with regard to its servicing and maintenance offering.
Lastly, recent changes to European (Directive 2024/2823 of October 23, 2024) and German design laws, including the introduction and EU-wide harmonization of the “repair clause”, restrict design protection for spare parts used for the repair of complex products, such as car parts, might have an adverse effect on our genuine parts business.
The implementation of the Euro 7 Regulation (Regulation (EU) 2024/1257), which came into force in 2024, introduced stricter and extended requirements for vehicle emissions, including not only exhaust emissions but also emissions from tyre abrasion and brake particles. These enhanced standards will apply to new vehicle types from November 2026 and to all new vehicles from November 2027. As a result, manufacturers will face substantial increases in costs across their whole portfolio.
After the UK Financial Conduct Authority (FCA) banned all discretionary commission arrangements (DCAs) in the motor finance market in January 2021, the Supreme Court of the United Kingdom subsequently ruled that customers were being treated unfairly by motor finance providers charging high levels of commission, especially where these were not disclosed. In October 2025, the FCA published a consultation paper proposing an industry-wide redress scheme for motor finance customers. This seeks compensation for customers who entered into financing arrangements during a specific time frame if they suffered loss or damage due to the commission not being disclosed. The consultation is set to close at the end of March 2026. Depending on the final form of the redress scheme, Volkswagen Financial Services (UK) Ltd., Milton Keynes, could be significantly impacted, especially by payment obligations and also litigation in this connection.
A change in regulatory requirements is also expected in other jurisdictions. Complying with new regulatory requirements can incur significant costs.