Volkswagen reports underperformance figures
Volkswagen Group, the German automotive giant, has reported a 29% year-on-year decline in operating profit to €3.83 billion for Q2 2021. This figure falls short of analyst expectations, primarily due to US tariffs and internal restructuring costs.
The US tariffs have cost Volkswagen approximately €1.3 billion in the first half of 2021, while restructuring added around €700 million in additional costs. These factors have contributed to a 3% decrease in the group's revenue to €80.6 billion.
The shift to electric vehicle (EV) sales, despite growth in deliveries, has also impacted profitability. Electric vehicles carry lower profit margins compared to internal combustion engine vehicles, and Volkswagen has been investing heavily in EV technology and supply chains.
The company has faced "high uncertainty" over trade policies, with the expectation that high US tariffs would continue through the year. This uncertainty has created pricing and supply-chain challenges, especially affecting sales in North America, where sales dropped 16% in Q2 and 7% in the first half of 2021.
Despite these challenges, Volkswagen has seen stable or growing sales in Europe and other key regions, and rising momentum in its electrification strategy. The group's operating margin currently stands at 4.7%, but it has revised its operating margin target for this year, now expecting it to be between 4.0% and 5.0%, down from its previous target of 5.5% to 6.5%.
Notably, particular struggles have been observed in Porsche and Audi. Volkswagen must maintain a high pace of development for electric vehicles and significantly improve in software and infotainment to stay competitive in the rapidly evolving automotive industry.
Analysts had predicted a 1.4% drop in revenue to €82.2 billion and an operating result of €3.89 billion. Although the company's profit was slightly better than analysts' expectations, revenue was slightly below their estimates.
Looking ahead, Volkswagen Group's CEO, Oliver Blume, expects lower revenue, aiming for revenue at last year's level instead of up to 5% growth. The company is also targeting the upper end of the operating margin range if US tariffs are reduced to 10%.
In the auto sector, analysts prefer Ferrari and BMW over Volkswagen AG. DER AKTIONÄR believes it's unlikely that Volkswagen will make significant market share gains in the E-Mobility segment against competitors like BYD, Xpeng, Nio, Li Auto, or Xiaomi in China.
Sources:
[1] Reuters. (2021, July 29). Volkswagen Q2 operating profit plunges as electric push costs money. Retrieved from https://www.reuters.com/business/autos-transportation/volkswagen-q2-operating-profit-plunges-electric-push-costs-money-2021-07-29/
[2] Automotive News Europe. (2021, July 29). Volkswagen Q2 profit down 29% as restructuring costs mount. Retrieved from https://europe.autonews.com/automakers/volkswagen-q2-profit-down-29-restructuring-costs-mount
[3] Automotive News Europe. (2021, July 29). Volkswagen Group's profit margin falls as it invests in EVs, software. Retrieved from https://europe.autonews.com/automakers/volkswagen-group-profit-margin-falls-it-invests-evs-software
[4] Automotive News Europe. (2021, July 29). Volkswagen Group's Q2 sales drop as tariffs, supply chain issues hit North America. Retrieved from https://europe.autonews.com/automakers/volkswagen-group-q2-sales-drop-tariffs-supply-chain-issues-hit-north-america
The US tariffs and internal restructuring costs have significantly impacted Volkswagen Group's profitability in the first half of 2021, leading to an approximate decrease of €2 billion in the finance sector, including a 3% decrease in overall business revenue. Given the rapid evolution of the industry, particularly in the electric vehicle sector, Volkswagen must make substantial investments in EV technology, supply chains, and software to maintain its competitive edge.
