VW has been working on a broad cost-cutting program to lift profitability at is namesake brand, which is trailing peers. At the so-called core group,
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VW has been working on a broad cost-cutting program to lift profitability at is namesake brand, which is trailing peers. At the so-called core group, comprising the VW, Skoda and Seat brands, returns fell to 5% during the first half.
Volkswagen AG’s second quarter margins declined with restructuring charges weighing on its mass-market brands as well as lower deliveries in China.
Operating returns fell to 6.6% in the three months through June, down from 7% a year earlier, the carmaker said Thursday. Chief Financial Officer Arno Antlitz said the result was below the company’s expectations and more cost cuts will be needed in the second half of the year to reach annual goals.
VW has been working on a broad cost-cutting program to lift profitability at is namesake brand, which is trailing peers. At the so-called core group, comprising the VW, Skoda and Seat brands, returns fell to 5% during the first half. Audi, a key profit center, earlier this month lowered its profitability goal after sales slumped.
The company’s shares fell as much as 2.5% in early trading in Frankfurt, taking the decline this year to around 10%.
Carmakers including VW are confronting a weakening market, with Renault, Nissan and Stellantis all reporting a slump in profit for the first half of the year. Aside from stagnating demand in China, EV sales have cooled after governments in several countries pulled subsidies and inflation sapped consumer spending.
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What Bloomberg Intelligence says:
Volkswagen’s 2Q results were muddied by €900 million of one-offs however good free cash of €2.9 billion was reflected in a robust underlying Ebit margin of 7.6% (6.6% reported) that shows sequential improvement despite €800 million of negative pricing that remains a 2H risk. New models assist 2H, bar Porsche which is hit by 911 supply constraints. Revised July 9 guidance was reiterated with a lowered free cash €2.5-€4.5 billion target due to €2 billion of investment in Rivian expected in 2H.
— Michael Dean, BI automotive analyst
On Thursday, VW said that new orders rose 2% during the first half in Western Europe, its home region, and orders for battery-powered cars more than doubled. The order book reaches “well into the fourth quarter,” the company said, which is rolling out a record number of new models during the second half.
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The manufacturer is under pressure to jump start EV uptake as the inability to hit tighter European Union fleet emissions levels as of next year could mean heavy fines. A significant boost to EV sales will be challenging as consumers show little appetite, according to UBS analyst Patrick Hummel. VW may face a €2 billion negative impact on earnings next year as a result, he said.
Earlier this month, VW cut its operating margin outlook to as much as 7%, down from a predicted high of 7.5% after unexpected charges for a potential plant closure in Belgium and termination agreements to reduce headcount.
The slowdown on EVs has prompted manufacturers to temper strategies and investments. VW, struggling with an EV rollout marred by delays and glitches, last month announced a tie-up with Rivian Automotive Inc. The pact will see VW throw a $5 billion lifeline to the loss-making EV maker in exchange for access to battery-vehicle technology and software.
The deal marked the second major partnership sought by Chief Executive Officer Oliver Blume after last year’s $700 million investment in China’s Xpeng Inc. The move aims to help reverse the company’s slide in the country, where its EV offering has fallen flat. During the second quarter, deliveries in China slumped 19% amid intense competition amid a protracted real-estate crisis.
VW on Thursday reduced its automotive cash flow forecast to a range of €2.5 billion ($2.7 billion) to €4.5 billion, citing investments and cash outflows from mergers and acquisitions. Previously it expected cash flow of as much as €6.5 billion.
Operating profit during the quarter declined 2.4% to €5.46 billion, slightly ahead of analyst expectations.
First Published Date: 02 Aug 2024, 07:54 AM IST