Volkswagen opened a new tab on Thursday, saying that operating profit for its core mass-market brands increased by 80% last year, which is a sign that closer cooperation is bearing fruit. The group, including Volkswagen, Volkswagen Commercial Vehicles, Skoda, and SEAT/CUPRA, posted an operating profit of 7.3 billion euros ($7.99 billion), mainly due to higher unit sales. VW said the performance program agreed last year had begun to stabilize its return on sales trajectory and lay the foundation for future growth.
The carmaker is cutting costs at its namesake brand and Audi and Porsche’s upmarket marques to boost sales returns, which have fallen behind those of rivals BMW and Mercedes-Benz. It also wants to boost efficiency in production and sales, with managers being freed from bureaucracy. The cost-cutting plan has reached a “critical mass,” Chief Executive Martin Winterkorn told shareholders at an investors’ meeting.
During the meeting, VW said that each of its brands had been given a specific performance program to cut costs and improve their profitability and that it had already achieved savings of four billion euros this year. It also outlined plans to cut development times for new vehicles and reduce the number of tests required to save money without sacrificing safety or quality. It has also agreed with employee representatives on partial retirement schemes, which will reduce administrative staff.
Analysts welcomed the progress but warned that VW needed to take a more cautious approach to its sales and delivery forecasts. Demand is expected to remain weak in Western Europe this year, but the company also has a lower outlook for China and India than it had previously predicted. According to investment bank UBS, its lowered sales target suggested that it would have to rely on pent-up demand later this year to meet its goals.
Investors were also disappointed by a lack of detail on the Volkswagen Group’s long-term strategy, which has become increasingly urgent as Tesla and BYD race ahead with battery electric vehicles. “I don’t think management came away with enough evidence to alleviate investor concerns in the short term,” Bernstein Research said.
The company is working to develop vehicles that can be sold globally rather than models that can only be sold in one country. It has shifted focus to the US market. It is also investing more in new technology and a new factory in the Czech Republic to expand its production capacity for full-electric vehicles.
The VW group also has a diversified product portfolio with internal and external growth opportunities. Its passenger cars division will continue to be the most crucial source of revenue and earnings, but VW will likely also increase its investments in commercial vehicles. The firm is also preparing to launch an autonomous taxi service in 2024 and has the potential to be the most significant player in this growing market sector. This could offset the decline of traditional taxis and private car ownership.
