Cars

Volkswagen, operating profit falls by 20% in the first quarter

Falling sales and costs to produce new models weigh on profitability, but the group confirmed its full-year forecasts

by Finance Review

30 April 2024

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First-quarter earnings of the Volkswagen group fell more than expected after declining car sales and new model introduction costs weighed on profitability. Operating profit fell 20 per cent to EUR 4.6 billion in the first three months of the year. This was worse than analysts' estimates, but the group confirmed its forecast for the whole year. Sales also showed a decline: 2.1 million, or -2 per cent.

"As expected, the first quarter results show a slow start to the year," said CFO Arno Antlitz. "A strong March and improved orders in recent months are encouraging and should have a positive impact already in the second quarter," he added.

Volkswagen is not the only industry giant to have a difficult start to the year. The Mercedes-Benz Group's first-quarter earnings, announced on Tuesday 30 April, slumped 34 per cent due to the impact of Asia and low demand for electric vehicles. Shares in Porsche, the Volkswagen Group's jewel, have been falling sharply since Friday, 26 April, after the luxury car maker posted its worst quarterly result since its IPO in late September 2022.

The Volkswagen Group plans to introduce more than 30 models this year to defend itself especially in key China (one third of the German giant's sales), where local rivals dominate in electric vehicles, which now account for 38 per cent of the market.

CEO Oliver Blume is promoting several technology partnerships - in China with Xpeng and with other players focused on artificial intelligence and autonomous driving - and cost cuts (including through the China Main Platform from 2026, for example) to challenge BYD, Tesla and Stellantis.

The Volkswagen brand, meanwhile, is implementing a EUR 10 billion savings plan, the goal of which is to double the operating margin from 3.5 to 6.5 per cent by 2026. In addition, it is implementing a EUR 10 billion savings plan, the goal of which is to double the operating margin from 3.5 to 6.5 per cent by 2026. According to Bloomberg, Volkswagen has reportedly offered €900 million in redundancies in Germany to reduce labour costs behind desks. Employees are expected to respond by May.

At the annual media conference on 13 March, the top management of Europe's leading carmaker offered reassurances on flexibility, including the prospect ofpushing the plug-in hybrid, in the face of a market that at this stage is not rewarding the transition to the battery-electric car to the extent hoped for. Not to mention the increasingly fierce competition and profit estimates, especially in China.

For the current year, Wolfsburg estimates revenue growth of 'up to 5%' and only a slight improvement in margins (between 7 and 7.5%).

Ordinary shares on Tuesday 30 April left almost 5 per cent on the parterre.