Home Business Volkswagen – Revised growth prospects for profits and revenues

Volkswagen – Revised growth prospects for profits and revenues


The Volkswagen group the medium-term growth outlook has been revised downwards. The decision of the German manufacturer is weighed down in particular by the slowdown in the global economy, which a few weeks ago pushed to reduce the sales volume estimates for 2019: they are expected to be stable compared to 2018 and no longer up slightly. The recent shock to the range's electrification strategies will also have repercussions on financial performance over the next few years and therefore limits have been imposed on the growth of investments and costs for Research and Development, along the lines of as announced last Thursday by Daimler.

The new goals. Specifically, in Wolfsburg they expect operating profit, net of extraordinary items (call charges, legal charges or one-off charges), to increase by at least 25% next year compared to 2016, against the previous estimate on an increase of over 30%. Revenue growth, again between 2016 and 2020, has also been cut: from more than 25% to 20%. The German group has however confirmed the strategic targets of the industrial plan Together 2025+: the operating margin should remain within the range of 6.5% to 7.5% in 2019 and in 2020 and increase between 7% and 8% in 2025.

More and more challenging context. "We continue to pursue our ambitious strategic financial goals for 2020 and 2025. We also confirm our prospects for 2019. The Volkswagen group remains very solid in the face of increasingly difficult economic conditions," explained financial director Frank Witter . However, the manufacturer, in light of the impact of the new cycle of investments announced last week, will have to "implement a systematic discipline in terms of costs to achieve its long-term goals". To this end it was decided, for Automotive activities, to curb the growth of expenses in research and development, which between 2020 and 2025 will not exceed 6% of revenues, well below the average 7% recorded between 2016 and 2019. A similar ceiling was set for capital expenditure (investments in assets, plant, machinery and equipment), which should not exceed 6% of total operating costs.

The benefits of electric. The goal is to generate, starting next year, net cash flows of at least ten billion and to record a net liquidity of over 20 billion to support the demanding electrification program, which will not only have negative repercussions. In fact, managing director Herbert Diess has provided some details on the positive impact of the Meb electric platform. THE production costs of ID.3, for example, they will be as much as 40% lower than the electric variant of the Golf due to a series of design features: the batteries can be exploited to increase the structural rigidity of the bodies while the modular layout offers advantages in their arrangement and generates economies of scale. Additional benefits come from the use of plants exclusively dedicated to electric. Also for these reasons the group is convinced that it can face the transition to the electric sector without seeing an erosion of profitability. Moreover, help to share investments and reduce costs can come from alliances with other manufacturers such asstrategic agreement signed with Ford. The intention of the Germans to share the is now known MEB platform with other houses but for now there seems to be nothing concrete as there is no basis in the rumors of possible collaborations with Tesla. Diess reiterated his admiration for the Californian House, but once again ruled out the existence of cooperation projects. With the leaders of Palo Alto there are only occasional exchanges of opinions and ideas on certain topics such as recharging infrastructures.

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