Authored by Victoria Waldersee
On Wednesday, Volkswagen shares experienced a decline following a profit warning issued overnight, which was partially triggered by the potential closure of an Audi plant and a 3.8% decrease in second-quarter sales, primarily affected by China.
In China, deliveries dropped by nearly 20%, reflecting a broader decline in sales of combustion engine cars, which still dominate Volkswagen’s lineup in the country.
As China moves swiftly towards an all-electric market, Volkswagen has announced plans to increase its range of battery-powered vehicles in the upcoming years and prioritize profitability, even as local competitors slash prices by up to 50%.
“We anticipate a challenging year ahead,” a spokesperson informed reporters.
The company revised its 2024 operating return on sales forecast to 6.5-7% from 7-7.5% and disclosed that the Audi brand is contemplating the closure of its Brussels site, employing approximately 3,000 individuals, due to low demand for its high-end electric cars.
At 10:30 GMT, Volkswagen shares were down by 1.13% at 105.4 euros, contributing to a 5.5% decline year-to-date.
According to Volkswagen, finding an alternative use for the plant or shutting it down, along with other expenses, could amount to up to 2.6 billion euros ($2.8 billion) in the current financial year.
A consultation process is currently underway to explore alternative solutions for the site.
MEXICO MOVE
The future of Audi’s Brussels plant was cast into uncertainty earlier this year when the carmaker announced that the successor model to the Q8 e-tron would be manufactured in Mexico.
Rising demand for newer models like the Q6 e-tron, set to be launched this year, led to a significant decline in interest in the older Q8 e-tron produced in Brussels, as stated by Audi on Tuesday.
Audi has faced challenges in catching up with premium carmakers BMW and Mercedes in the shift to electric vehicles.
“Products like the first-generation Q8 e-tron were interim solutions – not a complete overhaul like Audi has undertaken with its new premium electric platform,” remarked Stephen Reitman of Bernstein Research. “The potential of the Q6 is greater.”
Audi has pledged a refresh in 2024 and 2025, introducing over 20 new EV and combustion engine models, followed by EV-exclusive models starting from 2026.
ADDRESSING COSTS
Volkswagen, known for its strong union representation, has not shut down a plant in four decades, but analysts suggest that the carmaker is under pressure to reduce excess production capacity significantly.
“Given the low margin in first-quarter results, now is the time to negotiate with unions,” highlighted Daniel Schwarz of Stifel Research.
Some analysts view the potential plant closure as a positive step towards Volkswagen addressing its costs and excess capacity.
“There is concern due to the headline figures suggesting that VW is facing challenges. However, this is a business grappling with excessive costs, and they are taking steps to address that,” remarked Philippe Houchois of Jefferies.
($1 = 0.9241 euros)