Audi plans fresh overhaul to regain lost ground to BMW, Mercedes

[FRANKFURT] Volkswagen AG's Audi division will present a new plan in May to regain momentum after falling behind rivals Mercedes-Benz and BMW AG as the upscale brand braces for more challenges from high spending and new emissions tests in Europe.

"We're going to work hard on our cost structures," Audi Chief Financial Officer Alexander Seitz said Thursday in a statement. "But operationally we're going to face a year of cleaning up" as cost for new vehicles and stricter emission tests in Europe continue to weigh on earnings.

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Audi's return on sales last year slumped to 6 per cent from 7.8 per cent as VW's largest profit contributor increased spending on electric cars and production bottlenecks stemming from new emissions testing in Europe dragged. Global deliveries declined as well.

Audi targets slightly higher deliveries and revenue this year, and an operating profit margin between 7 per cent and 8.5 per cent. Longer-term, the Volkswagen nameplate targets a profit margin between 9 per cent and 11 per cent.

Audi has widened an efficiency push to save 15 billion euros (S$23.03 billion) by 2022 after a tumultuous year that culminated with the temporary arrest of former Chief Executive Officer Rupert Stadler over his role in the diesel-emissions scandal.

VW CEO Herbert Diess this week singled out labor costs as a "big concern" at the main VW and Audi brands. There might be "some smoke" emanating from Audi's headquarters and main factory in Ingolstadt, Chief Financial Officer Frank Witter said.

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Audi will launch 5 fully-electric and 7 plug-in hybrid models within 24 months to overhaul its lineup and consider switching one of its existing model lines to battery power. It will broaden the lineup to 30 electrified cars by 2025.

The brand will invest 14 billion euros on new technology including autonomous driving, electric cars and digital services by end-2023.

CEO Schot told Bloomberg last week the brand expects deeper cooperation with sister brands VW and Porsche help lift returns and plans to put a greater focus on its largest market China.

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