Volkswagen Lowers Sales Outlook
The gloomier sales outlook comes amid widespread strain on the auto industry.
(Bloomberg) -- Volkswagen AG lowered its outlook for vehicle deliveries this year on a faster-than-expected decline in auto markets around the world amid economic jitters in Europe and an unprecedented slump in China.
The world’s biggest carmaker now expects vehicle deliveries to be flat this year, compared with a previous expectation for a slight rise, the Wolfsburg, Germany-based company said Wednesday in a statement. Volkswagen, which beat analyst expectations for third-quarter earnings, cited the slowing global economy, increasingly intense competition and volatile exchange rates for the change.
“We are a bit more cautious, and that pretty much applies to all regions,” Chief Financial Officer Frank Witter said in an interview with Bloomberg TV. “We know what needs to be done -- get our act together on vehicle launches and be very cautious on costs and expenses.”
The gloomier sales outlook comes amid widespread strain on the auto industry as tighter environmental regulations spur a shift to electric vehicles even with consumer demand uncertain.
Renault SA earlier this month slashed its profit goals, while German rival Daimler AG stumbled with two profit warnings in 2019. In a sign of the competitive pressure, Fiat Chrysler Automobiles NV and French carmaker PSA Group are exploring a combination, a potential deal that would challenge Volkswagen’s European dominance.
With the push for electric vehicles reaching crunch time, “the next couple of years will be tough -- for us and the entire industry,” Witter said. “There’s no surprise that one or other party is talking to each other.”
Volkswagen’s third-quarter operating profit excluding special items rose to 4.82 billion euros ($5.36 billion), beating analyst expectations of 4.1 billion euros. The strong results prompted the company to stick to its forecast for an operating return on sales to be in a range of between 6.5% and 7.5% for the full year.
VW shares were up 0.8% as of 10:45 a.m. in Frankfurt, extending gains for the year to 26%.
Still, the outlook could indicate weaker results in the fourth quarter, after the profit margin widened to 7.9% from 7.6% in the first nine months of 2019.
What Our Analysts Say
Volkswagen’s strong results will spur further industry consolidation as smaller players address a lack of global scale vs. VW and the ability to compete in new tech.
-- Michael Dean, Bloomberg Intelligence auto analyst
To avoid bloated inventory, the automotive giant cut production plans for this year by 900,000 cars compared to initial projections, Witter said in a telephone conference with reporters. With markets weakening, the industry woes will affect the company’s budget planning, the CFO said. VW’s supervisory board is scheduled to review the manufacturer’s five-year spending plans on Nov. 15.
“The best of the party is over,” Witter said, but he stressed there was no reason to predict a dramatic industry downturn. “Times will just get tougher.”
While lucrative SUV models have helped VW offset some of the weakness, the real shift is just getting underway. Next week, production of the VW ID.3 electric car will start. The model, intended as the mass-market flagship of its battery-powered lineup, will be the litmus test for the industry’s most comprehensive segue into electric vehicles.
After unveiling the first in a rollout of 70 electric models, Chief Executive Officer Herbert Diess is focusing on a strategic overhaul to boost the carmaker’s valuation from near crisis levels. Bold steps are needed, such as listing stakes in Porsche and Lamborghini, according to Bloomberg Intelligence analyst Michael Dean.
“The group structure is something we always review,” said Witter, adding that the company will present a new five-year plan in mid-November. “We all know how difficult the transition will be.”
--With assistance from John Bowker.
To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net
To contact the editors responsible for this story: John Bowker at jbowker2@bloomberg.net, Chris Reiter, Anthony Palazzo
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