Volkswagen has reduced its outlook due to a challenging market environment and underperformance of its passenger cars, commercial vehicles, and tech components brands. As of September 28, Volkswagen has again revised its annual earnings forecast after a similar adjustment in July.
Volkswagen now expects global deliveries to be around 9 million vehicles this year, down from 9.24 million in 2023. The company had previously projected a growth of up to 3%. Sales revenue is expected to decline by 0.7% to 320 billion euros, down from an initial forecast of up to 5% growth. The profit margin for 2024 is projected to be around 5.6%, lower than the previous 6.5%-7% range.
In July, Volkswagen cited additional restructuring costs as a reason for lowering its performance outlook for the year, reducing the operating return margin from a peak of 7.5% to a maximum of 7%. It was suggested that the company might shut down an Audi electric vehicle plant in Belgium due to poor demand for electric SUVs produced in Brussels.
In December 2023, Volkswagen announced a cost-saving initiative aiming to save 10 billion euros by 2026 through faster product development and production, reducing employee costs, and more efficient procurement strategies. In September, the company considered closing an auto manufacturing plant and a parts factory in Germany to further cut expenses. This would mark the first closure of a factory in Germany since Volkswagen's establishment in 1926. The closures and forced layoffs in Germany are expected to be completed by 2026.
On September 11, it was reported that Volkswagen might cancel long-standing employment guarantees for its workers in Germany, which included a promise not to lay off employees at six factories until 2029.
Volkswagen CEO Oliver Blume commented that factory closures and layoffs are necessary measures amid a tough economic climate, intense industry competition, and weakening manufacturing competitiveness in Germany. Rising energy and labor costs in Germany place Volkswagen at a disadvantage compared to its European competitors, while new carmakers entering the European market further complicate the situation.
Volkswagen faces challenges in its transition to electric vehicles. Despite being one of the most aggressive foreign carmakers in this transformation, progress has been slow. In the first half of this year, Volkswagen's global sales of pure electric vehicles reached only 317,000, a 1.4% decline year-over-year, accounting for 7.3% of the group's total sales. In Europe, pure electric vehicle sales were 184,000, down 15.2% year-over-year. Volkswagen's software company CARIAD has incurred losses of 3.395 billion euros, 2.068 billion euros, and 2.39 billion euros over the past three years.
Financial reports revealed that in the first half of 2024, Volkswagen's sales revenue was 158.8 billion euros, slightly higher than 156.3 billion euros during the same period last year. Operating profit was 10.1 billion euros, an 11% decrease year-over-year. Total global sales for the first half of 2024 were 4.35 million units, slightly down from 4.37 million in 2023. Notably, sales growth in North America, South America, and Western Europe nearly offset declines in other regions, particularly the significant drop in the Chinese market in the second quarter, contributing to the decrease in VW's operating return rate.
Volkswagen delivered 1.345 million vehicles in the Chinese market in the first half of 2024, a 7.4% year-over-year decline, with market share falling from approximately 40% to 30.9%. The rapid growth of electric vehicles in China has eroded the market share of fuel-powered vehicles, leading to a sharp drop in sales for joint venture brands, including Volkswagen.
The decline in sales is forcing Volkswagen to cut capacity in the Chinese market. In July last year, VW subsidiary SAIC Volkswagen announced the permanent closure of its first factory in Anting, Shanghai, with production capacity merged into the Yizheng plant. Recently, it was reported that SAIC Volkswagen plans to close its factory in Nanjing, Jiangsu next year. On September 21, SAIC Volkswagen stated that all production activities in the Nanjing plant were running normally, and adjustments to production bases were a necessary response to market trends and part of the company’s strategic planning.
It's worth noting that besides Volkswagen, BMW and Mercedes-Benz have also lowered their annual performance expectations. Mercedes-Benz's adjusted profit margin for its main automotive business has been revised down from 11% to a range of 7.5%-8.5%. BMW's EBIT margin forecast for 2024 is now 6%-7%, down from the previous projection of 8%-10%.
