Automotive – Volkswagen Group plans to double its cost savings after disappointing third-quarter profit margins. With falling demand in Europe and China and falling profits, this has increased the urgency of efforts to reduce ballooning costs.
The Volkswagen Group reported a return on sales of 6.2 percent during the quarter, compared to its long-term target of more than 10 percent. High costs affected Volkswagen’s portfolio of brands. The company also took a big hit due to raw material issues.
Like many other industrial companies, Volkswagen hedges against commodity price fluctuations, which could result in non-cash gains or losses, usually at the end of each quarter. This resulted in a non-cash loss of 2.5 billion euros, or $2.64 billion, in the third quarter, an amount that VW will not be able to recover by the end of the year.
“The development in commodity markets remains unpredictable,” Volkswagen said. The company explained that Volkswagen’s brand cost-cutting plan is running behind schedule. “We cannot be satisfied with our profitability, which in the third quarter was below our ambitious targets,” said CFO Arno Antlitz.
The program, which aims to save 10 billion euros, or $10.6 billion, in the Volkswagen brand has been delayed, but some measures have already been implemented, Antlitz said. “There will be communications once they are ready,” Antlitz said of the plans. “We should not worry about a delay of a month or two.”
Volkswagen is committed to the prices of its electric cars despite discounts from some competitors. Volkswagen has joined a group of automakers and analysts who have warned in recent days that demand for electric cars is not developing as expected. This came as demand for Volkswagen electric cars decreased to 150,000 in Europe after it was 300,000 last year.
However, orders increased slowly in the third quarter compared to the first half and are expected to rise further in the coming months, Antlitz said, adding that the company is committed to its goals. The Volkswagen Group’s planning round, in which it sets spending budgets for five years, is scheduled to end in mid-November.
The company will no longer release results directly afterward, Antlitz said, and will instead inform shareholders at the automaker’s annual news conference in March. Volkswagen released its preliminary results for the third quarter on Friday, which lowered its profit margin expectations for the current year, disappointing investors.
Volkswagen confirmed that it achieved sales of 78.8 billion euros in the third quarter and a 14 percent increase in operating profits to 4.9 billion euros. The company said it still expects to deliver between 9 million and 9.5 million vehicles to customers this year, and for group-wide revenues to be 10 to 15 percent higher than in 2022.
Volkswagen Group’s brands, which include Skoda, Seat and Cupra, were hit by higher costs that offset stable prices and higher deliveries. During the first nine months, the Volkswagen brand’s operating margin fell to 3.4 percent from 4.7 percent a year ago.
And in China, where Volkswagen enjoyed a market-leading position in the combustion engine era, it may lose electric vehicle market share in the next year or two.