Slumping sales in China and increasingly stiff competition in Europe – which has yet to return to pre-pandemic demand levels – have weighed on profitability at VW
[WOLFSBURG] Volkswagen’s namesake brand pushed back its profitability target by three years as the carmaker contends with muted sales and the costs of slimming down its bloated operations.
VW now aims for a 6.5 per cent operating margin in 2029, rather than next year, as it cuts capacity and workers to offset lower demand in Europe and China. The brand’s returns declined to 2.9 per cent last year, it said on Thursday (Mar 13), the lowest since 2020.
“We faced and will continue to face significant headwinds, lower than expected growth in key markets and persistent inflation,” the brand’s chief financial officer David Powels said during a call discussing VW’s earnings.
Slumping sales in China and increasingly stiff competition in Europe – which has yet to return to pre-pandemic demand levels – have weighed on profitability at VW. Past turnaround efforts have been hampered by flubbed electric vehicle launches.
Group chief executive officer Oliver Blume late last year struck a deal with unions to make the brand more efficient. Measures include cutting capacity at its German sites by several hundred thousand units and reducing the workforce by more than 35,000 over the next five years. The brand is projecting an operating margin of more than 4 per cent this year and 5.5 per cent in 2027.
VW is planning several budget EVs to win over Europe’s squeezed consumers, but the first of these – a sub 25,000 euros (S$36,283) EV dubbed the ID. 2all – won’t be delivered until next year. The brand also has high hopes for the 20,000 euros ID. EVERY1, a compact EV that’s due to start production in two years in Portugal.
“With small cars, the 6.5 per cent margin expectation is a big one,” Powels said, adding that he’s confident the brand will achieve those returns by 2029. BLOOMBERG
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