olkswagen has significantly lowered its profit forecast for the current financial year. “Special effects” are expected to reduce the group’s earnings by around €10 billion in total, the Wolfsburg-based automaker said in a stock market announcement on Friday afternoon. The sharp deterioration in its China business and growing competition from Asian manufacturers are weighing heavily on the group. High fuel prices and the resulting increase in demand for electric vehicles are also affecting its outlook.
The situation on global markets has continued to worsen, “particularly in China,” Volkswagen Chief Financial Officer Arno Antlitz said. “The world’s largest single market has collapsed by 20 percent,” Antlitz said, while “Chinese manufacturers are simultaneously pushing into Europe with their low-cost exports.” He also pointed to changes in consumer demand.
“In addition, demand for battery-electric vehicles has accelerated, partly against the backdrop of the geopolitical situation and sharply higher petrol prices,” the Volkswagen finance chief said. Profit margins on electric vehicles are lower for German carmakers than on combustion-engine vehicles. Volkswagen said that, particularly for the Audi and Volkswagen brands, business expectations are therefore falling short of previous expectations.
Volkswagen is maintaining its revenue forecast at €315 billion, with only minor changes. However, the group has sharply reduced its projected operating return on sales. It now expects a margin of just 1 percent, compared with the previous forecast of between 4.0 and 5.5 percent.
The largest of the special effects is a write-down involving Volkswagen subsidiary Porsche. The medium- and long-term valuation of the company is now expected to be 10 to 15 percent lower. This will reduce Volkswagen’s group earnings by €6 billion, the company explained.
Among the group’s brands, the sports car manufacturer is particularly deeply affected by the current crisis. Porsche’s transition to electric vehicles has so far made little progress, while sales of its initially solid-selling electric models have fallen sharply. Some of those models have since been discontinued. The manufacturer has also written off billions of euros in investments.
The group also cited “additional restructuring expenses from the expansion of early-retirement arrangements,” the planned sale of the VW plant in Osnabrück and write-downs resulting from the continued deterioration of its business in China. “In total, the three effects are expected to burden the second half of the year by around €2 billion,” Volkswagen said.
Even without these special effects, the updated forecast for the operating return on sales stands at only 4 percent, putting it at the lower end of the company’s previous forecast range.
Volkswagen also highlighted further uncertainties affecting its outlook. “Possible future effects of the escalation in the Middle East cannot currently be reliably assessed and are therefore not included in the projected figures,” the company said. Volkswagen also cited the “currently applicable tariff situation” as another uncertainty.
Under an agreement between the European Union and the United States, a 15 percent tariff currently applies to deliveries to the United States. However, US President Donald Trump has previously threatened higher tariffs.
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