Volkswagen AG is amping up its presence in China with new models better geared to local tastes, vowing to turn around a slump in deliveries that has seen maker BYD Co. become China’s top-selling carmaker.
(Bloomberg) — Volkswagen AG is amping up its presence in China with new models better geared to local tastes, vowing to turn around a slump in deliveries that has seen maker BYD Co. become China’s top-selling carmaker.
The company’s share of joint-venture operating profit in China fell by almost a quarter to €625 million ($690 million) during the first quarter, VW said during Thursday’s results presentation. For the year, profit in the country is expected to fall by about 14% to €2.8 billion.
“We won’t give up on China,” Chief Financial Officer Arno Antlitz said on a call with analysts. “We have a strong position in combustion-engine cars, we are accelerating and catching up.”
The company, dominating the world’s biggest car market for well over two decades, is struggling to keep up with a slew of local EV manufacturers that are taking large chunks of market share. BYD, backed by Warren Buffett’s Berkshire Hathaway Inc. and Tesla Inc. together made up nearly half of EV sales in China during the first quarter.
VW Chief Executive Officer Oliver Blume, less than a year at the helm, has made several trips to the country to give impetus to turnaround efforts that prioritize driving assist functions, infotainment and adapting products to the Chinese market. The manufacturer Thursday said it’s confident the expanded model range, including the ID.7 sedan, and China-specific technology will push deliveries to recover this year.
“We will work on the cost side in China,” Antlitz said during a media call, with new products specifically from premium brand Audi for the Chinese market in the works. EV sales should rise to 200,000 this year, up from around 150,000 last year.
VW’s struggles in China come as the global economic outlook softens, even as it joined rivals like Stellantis NV and Ford Motor Co. in reporting stronger-than-expected first-quarter results. As conditions soften, automakers are facing up to the prospect of sagging vehicle prices while still working down orders accumulated during long months of supply-chain disruption. Aggressive EV price cuts by Tesla are also adding pressure, with Volvo Car AB Thursday cutting about 3% of its global workforce citing increasing headwinds.
Most luxury-car makers have proven less exposed with Porsche AG this week saying it plans to boost prices in the US and Europe. BMW AG on Thursday reported a jump in automotive returns of 12.1%, compared to an analyst forecast of 8.9%.
At VW, first-quarter operating profit €5.7 billion beat an average analyst forecast of €5.5 billion.
The company also confirmed its outlook, pointing to a high order book of 1.8 million vehicles in Western Europe alone. Improving prices in the company’s home region as well as North America also helped bolster profit with overall first-quarter deliveries surging by more than a fifth.
The shares were little changed in Frankfurt trading after gains of 7.5% since the start of the year.
“There will be increased competition in the second half of the year,” Antlitz said in a Bloomberg Television interview. “We have a rather strong position in the current pricing environment — I’m not worried about our pricing discipline.”
What Bloomberg Intelligence Says:
VW’s strong underlying 1Q Ebit margin of 9.3% — adjusted for a €1.3 billion negative commodity hedge revaluation — and €2.7 billion of adjusted free cash provides confidence that reiterated 2023 guidance at the top end can translate into a 16% increase in consensus Ebit (and even 3% at the bottom end). Rising inventories nevertheless remain an industrywide concern. Weak 1Q China sales resulted in a 15% fall in equity income, though VW noted a strong April pick-up.
Volkswagen Strong 1Q Unlocks Bullish Guidance Potential: React
To lessen its dependence on a single market, VW has stepped up moves to gain market share in the US, where its namesake brand is an also-ran. The company on Thursday flagged further “US projects” to boost growth. Earlier this year, it announced plans for a new plant in South Carolina to make electric trucks and SUVs under the Scout nameplate and an investment of €4.8 billion to build a battery plant in Canada, its first outside of Europe.
–With assistance from Oliver Crook.
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