The Volkswagen-Group with CEO Oliver Blume (55) expects a further decline in profits in its most important individual market this year due to the continued fierce competition China out of. In 2024, the proportional operating result of the joint ventures there is likely to only be between 1.5 and 2 billion euros, according to a presentation by the DAX group on Wednesday. Last year, the proportionate operating result of the Chinese joint ventures fell by around a fifth to 2.62 billion euros. This year, with the new forecast, a further decline of up to a good 40 percent is to be feared.
In 2023, the core brand VW Passenger Cars in the People’s Republic had the position of market leader in the country to the electric car manufacturer BYD have to give up because the Chinese sold their cars on the market with high discounts and thus shook up the market. The operating results in China could still be impressive given the challenging environment, VW said in the presentation. In the combustion engine sector, market leadership has even been consolidated, and momentum has been gained in fully electric cars (BEVs), which are growing rapidly in China.
For accounting reasons, the Chinese business does not appear in the VW Group balance sheet in sales and operating results. The profit contributions from China are only shown in the financial result as investment results. In 2023, the entire group delivered 3.2 million vehicles in China, which was 1.6 percent more than in the previous year.
Volkswagen will benefit from improvements in day-to-day business in 2023
The Volkswagen Group made more profit overall last year and benefited from improvements in day-to-day business. The result after taxes increased from 15.8 billion euros in the previous year to 17.9 billion euros, as the DAX group announced on Wednesday in Berlin. That’s an increase of around 13 percent.
Europe’s largest car company had already presented the majority of its figures at the beginning of March. Thanks to a 12 percent increase in deliveries, sales climbed at a rate of 15.5 percent to 322.3 billion euros. The operating result, however, only rose by a good two percent to 22.6 billion euros, due, among other things, to the costs of securing raw materials. The group had already made a proposal for an increased dividend to 9.06 euros per preferred share.
The group with the core brands VW, Skoda, Seat and VW Commercial Vehicles (VWN) increased its return on sales from 3.6 percent to 5.3 percent, which was mainly due to the increase in sales, it said. The business with mass brands is not as profitable as CEO Blume would like, which is why a billion-dollar savings program with job cuts is underway in the area. At the brand group Audi On the other hand, a better margin would have resulted in 2023 only without costs for hedging raw materials. The Cariad software division
increased its operating loss to 2.4 billion euros. Financial services performed weaker than in previous record years.
Subdued outlook for 2024
The car manufacturer recently gave a muted outlook for 2024 and predicted an increase in sales of up to five percent – after an increase of 15 percent last year. The industry is currently suffering from weak demand, particularly for new electric cars, which is putting pressure on prices.
However, Volkswagen is hoping for new models and expects demand to increase this year, particularly for electric cars. The company expects orders in Western Europe to pick up in the coming months thanks to the new models, it announced on Wednesday. This also applies to the electric cars that are already on the market and for which Volkswagen started the new year with a clearly positive trend.
Blume wants to save billions of euros this year
In order to increase returns, CEO Blume prescribed a fitness program for the company. The first successes should be felt this year. Blume expects group-wide savings of more than ten billion euros, of which the core brand VW is expected to contribute four billion euros.
By 2026, it is expected to reach ten billion euros at VW alone, among other things through the reduction of administrative positions. The Wolfsburg-based company wants to increase its group-wide returns to up to ten percent by 2027; the goal for the end of the decade is nine to eleven percent.
The brand directors Thomas Schäfer and Imelda Labbé have been looking for this since Months after a path to higher margins
– and according to research by manager magazine, they have now formulated even higher goals than expected. Only: The specifications seem unrealistic, especially in sales.