Volkswagen Forecasts Profit Improvement as Car Sales Come Roaring Back

Volkswagen AG expects profitability to improve this year, banking on a continued recovery from the pandemic even as many economies wrestle with high infection rates and a global chip shortage weighs on the industry.

Europe’s biggest carmaker is projecting an operating margin of 5% to 6.5% for 2021 and aiming for the higher end of that range, according to a statement issued at the manufacturer’s supervisory board meeting Friday. That’s in line with analysts’ estimates and compares to 4.8% last year.

VW’s board proposed an unchanged dividend of 4.86 euros per preferred share and 4.80 euros for common stock. The company had been expected to cut the payout.

“We intend to carry over the strong momentum from the significantly better second half into the current year,” Chief Financial Officer Frank Witter said in the statement. “The programs for reducing our fixed costs and in procurement will make us more robust in the long term.”

Most carmakers have come through the global pandemic better than initially feared, led by a sales rebound in China. The reprieve is proving short-lived however. A global squeeze on semiconductors is dragging on while commodity prices such as copper are nearing all-time highs, and investors are taking a dim view of companies’ abilities to transform into nimble electric-car leaders.

VW shares pared earlier losses to rise as much as 0.6%. The stock has gained 13% since the start of the year. High net liquidity at 26.8 billion euros and VW maintaining its dividend were positive, Jefferies analyst Philippe Houchois wrote in a note. VW’s margin goal was “a bit disappointing,” he said.

Volkswagen Forecasts Profit Improvement as Car Sales Come Roaring Back

The pressures are accelerating plans to reorganize. Daimler AG this month made the surprise decision to spin off a majority of its trucks business, and VW is weighing a separate listing of its Porsche sports-car brand.

The move would be a watershed moment, and help address a stubbornly low valuation that’s putting VW at a disadvantage to the likes of Tesla Inc. VW is developing the industry’s largest fleet of electric cars and is significantly boosting software operations.

VW didn’t directly address the potential Porsche listing or the possible sale of supercar maker Bugatti to Croatia’s Rimac Automobili. The company did say that cash effects from mergers and acquisitions would be “significantly higher” this year.

VW Considers Bugatti Sale to Croatian Electric Supercar Maker

VW expects a “marked rise” in deliveries to push revenue up significantly this year. The company cautioned that intense competition, volatile commodity prices and foreign exchange markets and tight supply chains would challenge its business.

Last year, VW’s automotive cash flow shrunk by almost half to 6.4 billion euros. Operating profit excluding items fell 45% to 10.6 billion euros while revenue declined 12% to 223 billion euros, in line with preliminary numbers the company published last month.

VW plans to hammer out a deal with powerful labor unions by the end of next month for a 5% reduction in fixed costs, which have particularly weighed on the margins of the main VW car division in the past. Material expenses will be lowered 7% in the next two years.

Following VW’s ID.3 hatchback, the ID.4 electric SUV going on sale globally this year should contribute about 150,000 units toward a goal of about 600,000 purely battery-powered vehicles in 2021. It will compete with Tesla’s Model Y, which will be made at the electric-car maker’s factory outside Berlin due to open later this year.

©2021 Bloomberg L.P.

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