Volkswagen AG is the odd carmaker out in what’s otherwise been an upbeat earnings season for the industry.
(Bloomberg) — Volkswagen AG is the odd carmaker out in what’s otherwise been an upbeat earnings season for the industry.
While Mercedes-Benz raised its guidance and both Stellantis and Renault posted better-than-expected margins, VW on Thursday lowered its car-sales outlook and pledged to work on its dwindling cash flow as it struggles with logistics costs and waning orders in China. The shares fell as much as 4.1% in Frankfurt.
Unlike its peers, VW is in the midst of restructuring as it’s falling behind in its most important market. After having dominated car sales in the country for decades, the Germans are now losing out to Tesla Inc. and local champion BYD Co., who have raced ahead on electric vehicles because they’re better at producing models with technology and software geared to local tastes.
Chief Executive Officer Oliver Blume is trying to turn the tide with a $700 million investment in Chinese carmaker Xpeng Inc. and a plan to jointly develop EVs to bolster VW’s lineup in the world’s largest auto market. But the benefits of that partnership, announced on Wednesday, will take time to materialize — a first joint model won’t arrive until 2026.
“VW has partially admitted defeat” on EVs in China, Deutsche Bank analysts led by Tim Rokossa said in a note to clients. The Xpeng deal “could be a real chance for a fresh start.”
Things are looking better elsewhere in Europe. Renault’s margin rose to a record in the first half amid a well-filled order book. Mercedes, which has been pushing further upmarket, hiked its earnings forecast for the year after selling more of its most profitable cars. Jeep maker Stellantis, which has been more aggressive than VW on cutting costs, put its suppliers on notice Wednesday that it’s looking for even better parts deals to bolster profits.
Stellantis rose as much as 3% in Milan, with Mercedes shares also edging up in Frankfurt. Renault traded lower in Paris, erasing earlier gains.
The companies all share the challenge to overhaul their factories and shift to electric vehicles — a move that’s costly and complex.
Blume is pushing to make Europe’s biggest carmaker leaner with several cost-cutting programs in a value-over-volume strategy. He has replaced top management, pared back the company’s software ambitions and is doling out more autonomy to brands like Audi and Skoda.
The manufacturer cited issues including a transport bottleneck in Europe and North America, with shortages of trains as well as trucks and their drivers, Chief Financial Officer Arno Antlitz said on a call with analysts. Porsche on Wednesday warned that parts shortages that dented output of its only fully electric vehicle may stick around in the second half.
Blume has made several trips to China to give impetus to turnaround efforts that prioritize driving assist functions, infotainment and adapting products to the Chinese market. VW last month replaced the CEO of Audi partly because it wants to halt the sales slide in the country.
VW’s adjusted operating profit came in at €5.6 billion ($6.2 billion) in the second quarter, missing analyst projections. Net cash flow slumped 72% to €226 million. VW confirmed its financial outlook for the year but slightly lowered its projection for vehicle deliveries, to at least 9 million, from around 9.5 million previously.
“The focus for the second half is now on strengthening net cash flow,” Antlitz said in a statement, adding that he expects the cost-cutting programs at the various brands to improve the situation.
Read more: VW Takes $700 Million Xpeng Stake for Pact to Win Back China
(Updates with shares in seventh paragraph.)
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