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VW raises earnings outlook; warns chip crunch will worsen

Semiconductor shortages will be more severe in second half, finance chief warns

in Automotive News Europe, 29-07-2021

Volkswagen Group lifted its earnings outlook after strong profits at its Audi and Porsche brands helped to limit the fallout from the global chip shortage, which forced the automaker to cut expectations for deliveries this year.

VW expects adjusted operating return on sales to rise to between 6 percent to 7.5 percent, raising its outlook for a second time this year. Previous guidance was 5.5 percent to 7 percent.

Semiconductor shortages will be more severe during the second half, VW said. The automaker also highlighted risks from volatile commodity prices.

“We have successfully contained the impacts of the semiconductor bottlenecks to date, although we anticipate somewhat more pronounced effects in the third quarter,” Chief Financial Officer Arno Antlitz said in a statement on Thursday.

VW lowered the outlook for deliveries to customers. It now expects deliveries to be “noticeably” higher in 2021 from the 9.3 million last year, having previously expected them to rise “significantly.”

“The risk of bottlenecks and disruption in the supply of semiconductor components has intensified throughout the industry,” VW said.

First-half operating profit before special items reached 11.4 billion euros ($13.5 billion), above the previous high of 10 billion euros achieved in 2019, before the coronavirus pandemic wreaked havoc in the global economy.

The strong increase was in part driven by high demand for high-margin luxury Porsches and Audis.

Faced with limitations on how many production lines they can keep running, automakers have shifted output to their most lucrative vehicles, and lower inventories are enabling manufacturers to command higher prices.

Audi and Porsche had record deliveries for the first half and a double-digit operating return on sales of 10.7 and 17.6 percent, respectively. Bentley’s first-half results swung to a record profit, driven by strong growth in China.

VW Group’s automotive net cash flow climbed to around 10.2 billion euros, providing VW with robust financial muscle to finance investments.

VW has lost production of a high six-digit number of vehicles so far due to the squeeze on chips.

New targets, deals

Spurred by CEO Herbert Diess’ vision to overtake Tesla as the world’s top electric vehicle seller, VW has unveiled a string of targets and deals this year to meet its higher earnings goal.

They include a bid for Europcar on Wednesday, valuing the car rental firm at 2.9 billion euros ($3.4 billion), in a bet on mobility services which Volkswagen sees as a major source of future profits.

“Yes, we did buy a car rental company, but it won’t be a car rental company probably in 5 to 10 years’ time. It can be a big mobility platform,” Diess told journalists.

Diess, 62, said he hadn’t finished.

“Our electric offensive is picking up momentum and we will keep on increasing its pace in the months to come,” he said.

Reuters and Bloomberg contributed to this report


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