Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Volkswagen AG (VLKAF, Financial) delivered a solid set of financial results in the first half of 2024, with sales revenues increasing by 1.6% to almost EUR159 billion.
- The company launched over 30 new models in 2024, with more to come in 2025, receiving positive feedback from customers and the automotive media.
- Volkswagen AG (VLKAF) made significant progress in its restructuring program, which is the most comprehensive in its history.
- The company advanced its 'in China for China' strategy, launching new models and strengthening local partnerships.
- Volkswagen AG (VLKAF) achieved a strong net cash flow of EUR2.9 billion in Q2, almost compensating for the outflows of the first quarter.
Negative Points
- Volkswagen AG (VLKAF) faced significant non-recurring items, including provisions related to restructuring, which impacted the reported operating margin.
- The company experienced challenges in China due to intensified competition and economic conditions, affecting its overall performance.
- Audi's performance was held back by supply chain shortages, resulting in a lower-than-expected margin of close to 7% in Q2.
- Volkswagen brand's higher fixed costs and restructuring expenses led to a return on sales of below 1%.
- The company needs to intensify its efforts to improve performance and achieve its targets in the second half of the year, particularly in cost-cutting measures.
Q & A Highlights
Q: Can you provide insights on the expected synergies from the Rivian partnership and its impact on your investment budget?
A: (Oliver Blume, CEO) Our software strategy now includes partnerships with Rivian and others, which will help reduce investments in our own software development. This allows us to be more flexible regionally and improve our cost positioning. (Arno Antlitz, CFO) We expect to see a reduction in our investment budget, targeting around EUR165 billion, down from EUR170 billion, due to these synergies.
Q: What are the main drivers behind the negative equity income, particularly in China?
A: (Oliver Blume, CEO) The primary driver is the performance of our Chinese joint ventures, which have faced significant upfront investments. Additionally, new ventures like our partnership with Horizon Robotics are incurring initial costs, impacting equity income.
Q: Given the current fixed cost trends, when can we expect to see the benefits of your performance plans?
A: (Oliver Blume, CEO) We are in the early stages of implementing our performance programs, which are designed to compensate for expected headwinds and restructuring costs. We anticipate seeing positive impacts in the upcoming years as these measures take full effect.
Q: Why not set an absolute fixed cost reduction target to simplify tracking progress?
A: (Arno Antlitz, CFO) We have internal targets and are committed to transparency. The recent wage increases in Germany have impacted our fixed costs, but we are implementing restructuring measures like early retirement programs to address this. We are also focused on overall earnings per share, which includes all cost elements.
Q: How are you planning to meet the CO2 compliance targets for 2025?
A: (Oliver Blume, CEO) We are focusing on our product momentum, particularly with new electric vehicle (EV) models. Our order intake for EVs has doubled, and we are launching over 30 new models this year. We are also considering tactical measures like pooling emissions if necessary.
Q: What are the main areas that need further restructuring in the second half of the year?
A: (Oliver Blume, CEO) We are focused on ramping up our initiatives and cost reduction efforts. This includes implementing our top 10 program, which covers operational and strategic issues, and driving down costs across all brands.
Q: Can you clarify the expected free cash flow for the second half of the year?
A: (Arno Antlitz, CFO) We expect a positive operating cash flow in H2, driven by improved working capital management and higher dividends from China. We are targeting a free cash flow range of EUR2.5 billion to EUR4.5 billion, with the third quarter being weaker due to plant holidays and the fourth quarter being the strongest.
Q: How do you plan to manage the high working capital levels, particularly inventories?
A: (Arno Antlitz, CFO) We are focused on reducing inventories and improving working capital management. This includes optimizing transportation and leveraging our agency model for better pricing control. We also expect a positive impact from new model launches and improved supply chain management.
Q: What is your strategy for achieving CO2 compliance in 2025, and will you consider pooling emissions?
A: (Oliver Blume, CEO) We are relying on our strong product momentum and new EV models to meet CO2 targets. While we prefer to achieve compliance through our own efforts, we are open to considering pooling emissions if necessary to avoid penalties.
Q: How will the Rivian partnership impact your software strategy and cost structure?
A: (Oliver Blume, CEO) The partnership with Rivian allows us to leverage their existing solutions, reducing our own development costs. This will help us achieve a more competitive cost structure and improve our overall software capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
