VW raises full-year outlook, warns on growing chip shortage

Frankfurt

VOLKSWAGEN (VW) raised its earnings outlook after a strong start to the year, while cautioning that the semiconductor shortage rippling through the industry will become more pronounced in the second quarter.

Operating return on sales is forecast at 5.5-7 per cent this year, compared to a previous range of 5-6.5 per cent, Europe's largest automaker said on Thursday in a statement. VW also raised its projection for net cash flow and net liquidity, sending its shares up as much as 2.4 per cent in Frankfurt.

"We started the year with great momentum and are on a strong operational course," chief executive officer (CEO) Herbert Diess said in the release. While demand has rebounded across the car industry, manufacturers are now grappling with an acute chip shortage that is forcing them to halt production lines and prioritise some vehicles. Mr Diess said the company will feel more pain in Q2 and that some lines will stop "for a few days, a few weeks", though the fallout will not be as pronounced as with some rivals.

Stellantis NV warned on Wednesday that the global semiconductor shortage will deteriorate further from the first three months of the year, while Ford Motor has forecast a US$2.5 billion hit to earnings from scarce chip supplies. "We're fighting day by day," Mr Diess said. "We're doing everything to keep production running."

The shares rose as much as 5.2 euros to 223.2 euros, bringing the gain this year to 44 per cent. That makes VW the best performer on the Dax benchmark index of 30 companies.

VW is at a pivotal moment in getting its electric-vehicle (EV) push off the ground and narrow the gap to Tesla. Among the new models this year are the VW ID.4 and the Audi Q4 e-tron, two crossovers about the size of Tesla's popular Model Y, as part of the industry's largest roll-out of electric cars. Mr Diess said that EVs are less affected by the chip shortage, supporting the company's efforts to tilt production more into that space.

First-quarter operating profit surged to 4.8 billion euros (S$7.7 billion) from 900 million euros last year, when the Covid-19 pandemic shuttered showrooms and factory floors. The operating return on sales jumped to 7.7 per cent. The company took a restructuring charge of about 400 million euros in Q1, related mainly to cutbacks at its MAN heavy-truck business.

The German carmaker targets becoming the global EV leader by 2025. VW's shares have soared since Mr Diess wooed investors in March with back-to-back briefings on standardising key technologies across VW's 12 brands for scale effects that will likely elude both Tesla and established automakers.

The recovery in demand is helping to fuel VW's costly electric plans. Total deliveries during the first quarter jumped 21 per cent to 2.43 million vehicles, mainly driven by a surge in China. Deliveries of electrified models more than doubled to 133,300 vehicles, of which 59,900 were battery EVs and the remainder plug-in hybrids.

The Wolfsburg, Germany-based manufacturer has targeted selling roughly 600,000 purely battery-powered cars this year and expects to comply with tightening European emission rules.

Besides the semiconductor shortage, rising prices for raw materials from steel to precious metals are also taking their toll on the car industry, Mr Diess said. "Finding new sources, that's going to be a challenge for 2021 for sure," he said. "Demand is rising for everyone, and supply is constrained." BLOOMBERG