Volkswagen maps out profit push with brands getting more autonomy
VOLKSWAGEN’S (VW) boss has handed the company the tall order of raising returns while making the switch to electric cars that are still less profitable than their combustion-engine siblings.
By 2030, VW seeks to lift its group margin to 9 per cent to 11 per cent, compared with last year’s 8.1 per cent. Much of the success of this push will hinge on fixing the VW brand that has only made limited progress in improving returns, with margins still trailing competitors like Stellantis.
To get there, Europe’s biggest carmaker will hand more decision-making power to its four brand groups, allowing them to create their own customised roadmap to reach cost savings and efficiency goals. The bet is that, on their own, the likes of Audi, VW and Skoda will be more nimble in tackling bloated structures that have long slowed the car-making behemoth’s bid to catch up to electric vehicle (EV) leaders Tesla and China’s BYD.
“We are facing new entrants who are aggressively pushing into international markets,” chief executive Oliver Blume said on Wednesday (Jun 21), during an investor briefing at Germany’s Hockenheimring racing circuit. “That’s why we also need to change at rapid speed.”
The stakes are high. VW, while still delivering strong profits driven by its Porsche and Audi brands, has lost its sales lead in China after more than two decades. Software snafus have irked customers and delayed profit-driving models like the electric Porsche Macan and Cayenne.
VW’s mass-market and luxury vehicle groups will implement their own programmes to increase margins with a broader EV lineup and a range of cost cuts led by factory and labour efficiencies. The group is still targeting annual sales growth of 5 per cent to 7 per cent on average until 2027, and an automotive cash flow of between 6 billion euros (S$8.9 billion) and 8 billion euros this year.
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“It’s like in a fitness centre,” Blume said, where “everyone on the team is training, and as everybody gets fitter, so does the Volkswagen Group”.
Reaching those goals, particularly on cost savings to boost VW brand returns to a record 6.5 per cent by 2026, Blume will need to align VW’s many factions – from the Porsche-Piech billionaire owner family to Germany’s powerful labour unions who can significantly water down any measures.
VW has also started a review of 15 billion euros worth of strategic and financial investments with options including asset sales, chief financial officer Arno Antlitz said.
While VW realigns, the competition isn’t standing still. Stellantis plans to start sales of the Citroen e-C3 city car priced at less than 25,000 euros from the start of next year. VW’s ID.2, targeting around the same price level, won’t hit showrooms for another couple of years, with European carmakers struggling to come up with affordable EVs that generate sufficient returns because of high battery costs.
VW’s upcoming electric vehicle platform from 2026 is set to deliver vehicles with margins at parity with most equivalent combustion-engine models across all segments, Blume told analysts on Wednesday. To power the shift, the carmaker is trying to secure battery supplies by setting up plants in Germany, Spain and Canada and is spending 20 billion euros this decade to turn its one-year-old PowerCo battery unit into a behemoth with enough cell-making capacity for three million EVs a year.
In China, where VW is facing fiercer competition from state-backed local rivals such as BYD and Nio, the carmaker targets keeping market share roughly stable at 15 per cent – a tough task given its EVs have done poorly there.
Despite the challenges, the company retains significant investment firepower. VW has earmarked 180 billion euros as part of a rolling five-year plan that will be spent on software, EVs and turning around its business in China. In the medium term, the pace of spending is set to slow, the company said on Wednesday. The investment ratio for the group will drop to below 11 per cent by 2027 and to around 9 per cent by 2030, it said. BLOOMBERG
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