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  HOME | Business & Economy (Click here for more)

Volkswagen Steps Up Electric Car Drive as Profits Weaken

WOLFSBURG, Germany – Volkswagen AG will accelerate development and production of electric vehicles, the German car maker said on Tuesday, increasing its bet on the technology as profitability in China and at its core Volkswagen-brand unit is slipping.

Global auto makers are stepping up investment in new technology and preparing to replace many of their best-selling vehicles with new electric vehicle models under pressure from ever tougher emissions regulation and a shift in demand from ownership to car-sharing that is expected to boost demand for electric-vehicle fleets.

But the transformation of the industry comes at a high cost, forcing many auto makers to cut costs and form partnerships with one-time rivals to shoulder high technology investments.

Addressing journalists as the company published its full 2018 earnings, Volkswagen CEO Herbert Diess said the company wouldn’t be able to avoid layoffs as it ramps up electrification in coming years. Production of an electric vehicle, he said, required 30 percent less labor than that of an equivalent combustion model.

Earlier in the day, Volkswagen had announced plans to roll out 70 new electric models across its array of automotive brands that include VW, Porsche, Audi, Skoda, Seat, Bentley, Bugatti and Lamborghini, up from previous plans for 50 new models by 2028.

The company published preliminary earnings last month, saying that its operating profit – closely followed by industry analysts – had risen 0.7 percent to €13.9 billion ($15.7 billion), as profits fell at its core VW brand unit, it biggest business by sales, and its Audi luxury unit, a key profit engine.

Against the backdrop of falling profits at its namesake VW and Audi luxury brands, one of its key earnings’ drivers, and rising costs to develop electric and self-driving cars, the company is undergoing a new wave of restructuring to lower costs and increase earnings – independently of the long-term job cuts Dieses warned about on Tuesday.

Volkswagen labor representatives have said the company aims to cut up to 7,000 jobs from the German workforce. Volkswagen declined to comment.

Across its brands, Volkswagen sold 10.9 million vehicles world-wide last year, generating revenue of €235.8 billion ($266 billion), an increase of nearly 3 percent on annual revenue.

Detailed figures published on Tuesday show that Volkswagen is struggling to maintain profits in key divisions. In China, its largest single market by sales, profits from Volkswagen’s joint ventures fell 2.5 percent to €4.6 billion as China’s once-booming economy cools and auto sales are declining for the first time in years.

Audi, the luxury-car unit that competes against rivals BMW AG and Daimler AG’s Mercedes-Benz, has suffered a series of missteps over the past year.

The company’s chief executive was jailed in connection with Volkswagen’s diesel-emissions scandal and forced to step down. The scandal caused the company to lose ground to BMW and Mercedes.

Audi profit fell 7 percent to €4.7 billion last year as new-car sales declined.

The VW brand, the home of the iconic Beetle, suffered a 2 percent decline in operating profit and missed its earnings target as the return on sales slipped to 3.8 percent from 4.2 percent last year.

The VW brand sold 3.7 million vehicles last year, generating revenue of €84.6 billion, up 7 percent.

Profit at Skoda, the company’s fast-growing Czech car brand, fell slightly, as Seat, the Spanish car maker, rose sharply.

Super luxury brand Bentley posted a loss of €288 million due to delays in producing the new Continental GT model and pension-related losses.

Oliver Blume, the Porsche CEO who is also responsible for Bentley, told reporters at the news conference that restructuring at Bentley would lead a turnaround to profit in the first three months of 2019.

The first of Volkswagen’s new electric vehicles will begin rolling off the production line at the end of this year, including Porsche’s first all-electric sports car, the Taycan, which has already taken preorders for more than 20,000 cars, its first full year of production.

Buoyed by the demand, Porsche has said it is considering expanding production of the Taycan.

 

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