Volkswagen cut its guidance for the second time this year, warning that falling demand will undermine the German automaker’s profitability as it battles with unions over potential job cuts and unprecedented factory closures.
The manufacturer said Friday that it now sees an operating margin of 5.6%. That’s down from expectations of up to 7% in July, when Volkswagen previously had reduced Its forecasts, partly due to the expected costs from the closure of the Audi plant in Belgium. Net cash flow at the auto division is now expected to be less than half the level the company expected.
The big three German carmakers – Volkswagen, Mercedes-Benz Group AG and BMW AG – have now warned their earnings this month. Both are suffering from a slowdown in sales in China, where buyers are retreating due to the worsening real estate crisis. Increased competition in electric vehicles is also leading to steep discounts and slim profit margins, all while declining consumer confidence saps demand for combustion-engined vehicles.
Volkswagen’s lowering of forecasts adds to the challenges faced by CEO Oliver Blume, who has warned that costs in Germany are too high as electric vehicle growth slows and Chinese manufacturers led by BYD turn to Europe.
The company is considering closing its factories in Germany for the first time in its history, and has scrapped decades-old job security pledges as it attempts to become more competitive. Executives have cited surplus production capacity at two auto plants, setting them on course for a protracted conflict with powerful labor groups.
“The news helps Volkswagen’s brand case for shutting down excess capacity in Germany,” said Giacomo Reglin, a Bloomberg Intelligence analyst. “As with Mercedes, we expect further earnings warnings.”
Volkswagen now expects net cash flow at the auto division to reach about 2 billion euros ($2.2 billion), down from 4.5 billion euros previously, partly due to merger and acquisition activity including a partnership with Rivian Automotive Inc. Concerning electric vehicle technology.
Volkswagen said its namesake passenger car brand and its commercial vehicle unit performed below expectations. It cited additional risks facing its large-volume automaker group, which also includes Skoda and Seat, citing a “deteriorating macroeconomic environment.”
Volkswagen said on Friday that the company’s global deliveries will fall to about 9 million units this year, from 9.24 million in 2023. The automaker had previously expected a 3% increase.
Earlier this month, rival BMW warned that its 2024 profits would be the same Much less More than a year ago, after a defect in the braking system from supplier Continental AG led to the recall and halt of deliveries of about 1.5 million cars. The company expected the operating margin in the automotive industry to reach 6%, compared to the previous low level of 8%.
Mercedes-Benz itself followed suit warning The deep defeat in China hurt sales of its most expensive models, such as S-Class sedans and Maybach. The automaker said last week that adjusted revenues this year would range between 7.5% and 8.5%, compared to a previous forecast of 11%, and earnings before interest and taxes would be “significantly lower” than the previous year’s level.
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