VW lowers sales forecast amid growing EV competition
VW lowers sales forecast amid growing EV competition
Volkswagen Slashes Sales Target and Focuses on Improving Cash Flow
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Volkswagen, the German carmaker, has announced a reduction in its full-year sales target due to a dip in first-half sales in China, its top market. The company has lowered its target from 9.5 million vehicles to 9-9.5 million vehicles. This adjustment comes as Volkswagen faces tough competition in China and seeks to improve its cash position in the second half of the year. The Chief Financial Officer, Arno Antlitz, highlighted the need for the company’s brands to become more efficient and emphasized the importance of achieving results from the performance programs this year.
Despite the challenges it faces, Volkswagen remains optimistic about its strategy in China. The company’s next Capital Markets Day in April 2024 will focus on its plans for the Chinese market. While Volkswagen aims to be the number one international carmaker in China, it currently lags behind local electric vehicle (EV) makers and U.S. rival Tesla in terms of EV sales. However, Volkswagen is determined to stay competitive and plans to make significant progress in the second half of 2023 to strengthen its resilience.
The announcement of the reduced sales target had an impact on Volkswagen’s shares, which declined by 3.3% at 1115 GMT. Some analysts believe that the company’s communication regarding the deliveries scenario should be more conservative, as investors are concerned about the future. However, Volkswagen has kept its 2023 financial guidance unchanged, demonstrating its confidence in navigating the market.
Volkswagen is currently undergoing a strategic shift to prove its ability to maintain market share during the transition to electrification. However, the company is facing challenges in improving margins, especially in its mass-market business. Despite Volkswagen’s commitment to prioritizing profits over volume, competitors like Renault and Stellantis have outperformed the German automaker.
To improve its financial situation, Volkswagen plans to increase prices and revenues from internal combustion engine cars in the second half of the year. This, along with improvements in the supply of key components such as semiconductors, is expected to strengthen the company’s cash flow. Although transport and logistics delays have impacted the first half of the year, Volkswagen is taking steps to eliminate these bottlenecks and reduce waiting times.
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Volkswagen aims to strengthen its net cash flow in the second half, focusing on reducing inventories and improving cash flow over time. In the second quarter, the company’s cash flow plunged by over 71% to 226 million euros. However, Volkswagen remains committed to achieving its full-year cash flow target of 6-8 billion euros, albeit at the lower end of the range.
In terms of operating margin, Volkswagen’s core brands, including Volkswagen Passenger Cars, VW Commercial Vehicles, Seat, Skoda, and Cupra, achieved a margin of 5.5% in the first half of the year. On the other hand, Audi, Lamborghini, Bentley, and Ducati recorded a 10% operating margin.
In addition to these developments, Volkswagen also made a significant move in Russia. The company sold its Russian operations, including the Kaluga factory with an annual production capacity of 225,000 vehicles, for 125 million euros. This strategic decision aligns with Volkswagen’s efforts to streamline its operations and focus on strategic markets.
In conclusion, Volkswagen’s decision to cut its sales target reflects the challenges it faces in China and the fierce competition in the global automotive market. The company’s focus on improving cash flow and efficiency is crucial for maintaining its position in the industry. With plans to strengthen its net cash flow, increase prices, and streamline its operations, Volkswagen is determined to overcome these challenges and remain a key player in the transition to electrification.
Note: All currency conversions are based on the exchange rate of 1 euro to 0.8986 euros.
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