FILE PHOTO: General view of the Volkswagen power plant in Wolfsburg
by Christoph Steitz and Christina Amann
Volkswagen has revised its annual forecast downwards for the second time in less than three months, primarily due to weaker-than-anticipated performance in its passenger car division.
The automaker is now aiming for a profit margin of approximately 5.6% in 2024, down from the previously expected range of 6.5% to 7%, even though analysts were estimating a margin of 6.5%, according to LSEG data.
Annual sales are predicted to decline by 0.7%, reaching 320 billion euros, while the company had initially projected an increase of up to 5%.
Volkswagen is not the only company in the automotive sector to lower its outlook this year; both Mercedes-Benz and BMW made similar adjustments earlier this month due to declining demand in China, which is the largest market for the sector.
Additionally, Volkswagen has commenced crucial negotiations with IG Metall, Germany’s most influential union, regarding wages and job security.
The delivery forecasts for this year are now set at approximately 9 million vehicles, while the group initially expected a 3% increase after delivering 9.24 million units in 2023.
Volkswagen, which is scheduled to release its third quarter results on October 30, also projects a net cash flow for its automotive division of around 2 billion euros, down from the previous estimate of 2.5 to 4.5 billion.
(Reporting by Christoph Steitz and Christina Amann, with Peter Henderson; French version by Kate Entringer)
FILE PHOTO: General view of the Volkswagen power plant in Wolfsburg
by Christoph Steitz and Christina Amann
Volkswagen Lowers Profit Margin Expectations
On Friday, Volkswagen announced that it has revised its annual outlook for the second time in less than three months. This adjustment primarily stems from a weaker-than-expected performance in its passenger car division, raising concerns among investors and industry analysts alike.
Revised Financial Targets for 2024
- Volkswagen is now targeting a profit margin of approximately 5.6% for 2024, down from a previously anticipated margin of 6.5% to 7%.
- Market analysts had expected a margin closer to 6.5%, reflecting a broader trend of caution in the automotive sector.
Sales Forecast and Potential Impact
The automaker has also adjusted its sales forecast, projecting a 0.7% decline in annual sales, bringing total revenue expectations down to 320 billion euros. Initially, Volkswagen had aimed for a growth of up to 5%.
Broader Automotive Industry Challenges
Volkswagen’s downward revision is not an isolated incident. Both Mercedes-Benz and BMW have also cut their financial forecasts this month, primarily due to weakening demand in China, which remains the largest market for automotive sales globally.
Negotiations with Unions
As the automotive market faces challenges, Volkswagen has initiated crucial negotiations with IG Metall, Germany’s most influential trade union, focusing on wages and job protection within the company. These discussions are particularly important as the company seeks to ensure stability for its workforce amidst fluctuating market conditions.
Expected Deliveries and Financial Expectations for 2023
Volkswagen has revised its delivery forecasts, now anticipating around 9 million vehicle deliveries for the current year. This represents a significant decrease from earlier expectations of a 3% increase after delivering 9.24 million vehicles in 2023.
| Metric | Previous Target | Revised Target |
|---|---|---|
| Profit Margin | 6.5% – 7% | 5.6% |
| Annual Sales | Up to 5% increase | 0.7% decrease (320 billion euros) |
| Vehicle Deliveries | Expected increase of 3% | 9 million vehicles |
| Net Cash Flow Automotive Division | 2.5 billion – 4.5 billion euros | About 2 billion euros |
Looking Ahead: Third Quarter Results
Volkswagen is scheduled to present its third quarter results on October 30. Analysts and investors will closely scrutinize these results for further insights into the company’s performance and future strategies, particularly after these recent announcements.
Investor Reactions and Market Implications
The latest revisions to Volkswagen’s outlook could have broader implications for investor confidence and stock performance. Market analysts believe that ongoing challenges within the automotive sector, coupled with the weakening demand in key markets, may lead to further volatility in the near term.
Conclusion: Navigating Uncertain Waters
As Volkswagen adjusts its expectations for 2024, the company is positioning itself to navigate through the challenges posed by a fluctuating automotive market. By focusing on strategic negotiations and re-evaluating targets, Volkswagen aims to stabilize its operations while adapting to an ever-changing landscape.
