The violent price fluctuations in raw materials and growing competition in China keep Volkswagen under pressure. In current business without these burdens, however, the Group was able to grow overall.
Operating profit grew 35 percent in the first quarter to about 7.1 billion euros, excluding the valuation of hedging transactions in the purchase of materials. If they are taken into account, the picture looks different: The operating result fell by 31 percent to 5.7 billion euros, and the bottom line was only 4.7 billion euros after 6.7 billion euros at the beginning of 2022.
As the company reported, the situation stabilized somewhat again despite ongoing delivery problems in the automotive electronics sector. Sales rose by almost 22 percent to 76 billion euros. The fact that many vehicle models became more expensive as part of the general inflation may have been a factor – the Wolfsburg spoke of “improved price positioning”.
CFO Arno Antlitz indicated that it would be difficult to add high expenses for deliveries to the finished car. VW must therefore keep an eye on labor costs and productivity.
“We are preparing for strong competition”
Sales recovered in Europe and North America in particular, while the Volkswagen Group had significant problems in China. Antlitz nevertheless spoke of a “promising start to the 2023 financial year”. He said: “We are preparing for strong competition. But we also expect a strong second quarter.”
The effects of cushioning increased procurement costs for basic resources and energy (“hedging”) were still positive in the first quarter of 2022 at 3.2 billion euros. Now this turned into the opposite in the books. Details on this were not reported, and VW also had to adjust some values afterwards.
Because of the restrictions on world trade, especially in the high phase of the Corona period, there was a crash in the supply chains of the automotive industry. The situation has eased somewhat recently. Although VW admitted “persistent impairments” – nevertheless, the weak deliveries from the start of the previous year were improved by a total of 7.5 percent to 2,041,000 cars. Production also picked up again after a production backlog had built up over the past two years due to supply bottlenecks for microchips and raw materials.
The group fell short of expectations in China, the most important market by far. Sales there fell by 14.5 percent from January to March, and even more for e-cars. For the first time in decades, the core brand VW passenger cars lost its market leadership to the local electric rival BYD. The Germans recently lacked software and entertainment functions that meet the taste of young customers.
Growth in global e-car business
Countermeasures are to be taken with new models and investments. “The market as a whole was pointing downwards and our volume was pointing downwards,” explained Antlitz on the first three months. “We expect that both will recover significantly over the course of the year.” It is clear that Volkswagen has to catch up in China – the chief financial officer named autonomous driving, digital entertainment systems and “general speed” as key areas. “We are confident that we can continue to play an important role there in the future.”
The global business with e-cars grew, for the first quarter the group reported an increase of 42 percent to 141,000 units. At just over 7 percent, the proportion is still relatively small overall.
According to expert opinion, VW needs to become more effective in developing self-programmed software. There were major delays here – and contrary to the original plan, the subsidiaries Porsche and Audi are going their own way for the time being. The launch of the future car Trinity announced by the core brand, including its own electronics platform, has been postponed. It is also unclear whether a new plant will be needed for this.
The software unit Cariad slightly increased its loss in the first quarter compared to the same period last year from 416 to 429 million euros. The group referred to the high investment requirements. VW has planned billions for its battery cell plants in Europe and Canada.
Group leaves outlook for 2023 unchanged
The “Premium brand group” with Audi fell behind in the operating result compared to the first three months of 2022, after 3.5 billion euros then, it now comes to 1.8 billion euros. However, the Ingolstadt company recorded an increase in sales. According to the latest figures, the “Volume brand group”, which includes the core VW passenger car division, improved its operating profit from around 880 million to 1.7 billion euros. Porsche was also able to sell significantly more.
Many car manufacturers had reserved scarce electronic parts for more expensive models. The availability of microchips is still “limited, but it’s getting better,” said Antlitz. He estimates that supply and demand will roughly balance here in the third quarter.
The group left its outlook for 2023 unchanged. He has so far calculated with an increase in sales of 10 to 15 percent and – thanks to full order books – an increase in deliveries to 9.5 million vehicles (previous year: 8.3 million). However, US competitor Tesla is not only making speed with its new plant just outside of Berlin, but is also putting competitors under pressure with price reductions.
