VW Offers Tempered Forecast for 2018 on Economy, Diesel Risks

(Bloomberg) -- Volkswagen AG offered a tempered earnings and sales forecast for 2018, citing the risk of a “slight” slowdown in the global economic growth that powers the car-buying market.

Operating profit could increase by a fraction of a point to as high as 7.5 percent of revenue this year, Volkswagen said Friday. Sales will rise 5 percent, but the forecast depends on a number of factors that could derail its plans.

The world’s biggest automaker cited a litany of risks, including tightening emissions rules, exchange rate shifts and the the harrowing transition auto manufacturers are trying to pull off as they switch from combustion engines to more models powered by electric energy. There’s also the ongoing burden of the diesel-emissions cheating scandal that’s hurt profit the past two years.

“This is a cautious outlook compared to last year’s result and, like its peers, Volkswagen, isn’t going out on a limb,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler.

Carmakers are feeling their way through a generational shift that’s exposing the industry to unprecedented demands while offering an uncertain payoff. New regulations and competition from tech companies have spurred big bets on cars that consumers haven’t fully embraced. Daimler AG, the owner of the Mercedes-Benz luxury car brand, also issued a muted 2018 forecast, highlighting how the industry has adopted an intense investment mode to rebuild around a future of battery-powered and autonomous driving.

“We, like the entire industry, are facing major challenges and radical change,” Volkswagen Chief Executive Officer Matthias Mueller said Friday in a statement.

Volkswagen last year budgeted 20 billion euros ($25 billion) through 2030 to develop electric versions of all 300 cars, trucks or buses sold by its dozen brands and buy their batteries. While its namesake VW brand reached a deal with unions in late 2016 to eliminate tens of thousands of jobs in a drive to maintain earnings, the Wolfsburg, Germany-based manufacturer remains legally and financially hampered by its two-year-old diesel-engine manipulation scandal.

The carmaker’s shares fell 0.3 percent to 166.80 euros at the close in Frankfurt, reversing a gain earlier in the day. Operating profit excluding special items last year rose 17 percent to 17 billion euros, with the margin widening to 7.4 percent of sales from 6.7 percent in 2016. The revenue forecast compares with a 6.2 percent jump posted in 2017.

To contact the reporter on this story: Elisabeth Behrmann in Munich at ebehrmann1@bloomberg.net.

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tom Lavell

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