"It is fair to say that the very best of the party is over," Chief Financial Officer Frank Witter told analysts in a call to discuss the company's outlook.
Volkswagen joins a string of automakers and suppliers including Ford and Continental in warning of tough times for an industry facing higher investments into cleaner and self-driving technologies at a time when a trade war between Washington and Beijing is curbing global growth.
Volkswagen now expects operating profit before special items to rise by at least 25% over 2016-2020, down from a previous forecast of more than 30%, presentation slides showed.
The Wolfsburg-based company also cut its forecast for sales growth over the period to 20% from more than 25%.
The new forecasts sent Volkswagen shares down 4% to 176 euros, compared with a 0.6% fall in Germany's blue-chip DAX index.
"We believe this largely reflects softer volume growth expectations," Citi analysts said in a note.
Volkswagen, whose brands range from budget Skodas and Seats to upmarket Audis and Porsches, confirmed its targets for an operating margin of 6.5%-7.5% in 2019-2020 and 7%-8% in 2025.
To counter the cost of rolling out electric cars, the company will increase sales of higher-margin sport-utility vehicles and work on lowering the cost of producing electric vehicles, Chief Executive Herbert Diess said.
Volkswagen's new ID.3 electric vehicle, for example, will be 40% cheaper to build than the electric version of its Golf model, he told investors.
As the battery pack in the new ID.3 can be used to add structural rigidity, some savings can be made to the vehicle body. Furthermore, the modular layout of the battery aids efficient packaging and economies of scale, he added.
Volkswagen said it would start producing the ID.3 in Dresden as well as in Zwickau, eastern Germany.
Electric cars will reach cost parity with gasoline and diesel variants from about 2025 onwards, the company said, helping to deliver profit margin targets.
(Reporting by Jan Schwartz and Edward Taylor; Writing by Thomas Seythal; Editing by Tassilo Hummel and Mark Potter)