VW says supply jams here to stay as earnings stagnate

28 October 2022 - 12:19 By Reuters
subscribe Just R20 for the first month. Support independent journalism by subscribing to our digital news package.
Subscribe now
A worker installs the cockpit into an ID.3 electric car on the assembly line at the VW factory in Zwickau, Germany.
A worker installs the cockpit into an ID.3 electric car on the assembly line at the VW factory in Zwickau, Germany.
Image: Sean Gallup/Getty Images

Volkswagen said supply bottlenecks were the new norm as its third-quarter earnings stagnated below pre-pandemic levels, under the burden of its Porsche listing and the write-off of a self-driving start-up, as well as issues securing parts.

The carmaker lowered its expectations for deliveries this year to be on par with last year, down from a previously forecast 5% to 10% rise, but maintained its earnings outlook of hitting the upper-end of a 7% to 8.5% margin.

“Challenges to our supply chain will become the rule, not the exception,” CEO Oliver Blume said, citing barriers to technology transfers between east and west.

A lack of semiconductors and other critical parts meant the carmaker has 150,000 unfinished vehicles and is stocking up on supplies to protect against more shortages in winter, CFO Arno Antlitz said in an earnings call.

He also said order books were filling up, with some models sold out for 18 months.

VW reported third-quarter earnings of 4.3bn (about R77bn), following 1.6bn in one-off effects from the suspension of Russian activities and the Porsche AG listing.

Earnings of 6% across the group were boosted by a 19.4% margin in the sports and luxury brands, which are more able to pass on rising costs by hiking prices than volume brands whose buyers are squeezed by inflation.

VW's shares fell 2.7% in early trade, underperforming Germany's DAX, which fell 0.8%.

The results beat last year's third quarter when chip shortages reduced sales across the auto industry, but they lagged pre-pandemic profits even as luxury carmakers, such as Mercedes-Benz, caught up with 2019 earnings this quarter.

Porsche has overtaken its former parent VW as Europe's most valuable carmaker after its listing in September.

VW's difficulties also included a 1.9bn non-cash impairment charge resulting from the writedown of its investment in Argo, a self-driving start-up it jointly owned with Ford Motor Co.

Ford and VW joined forces in July 2019 to share control of the Pittsburgh-based company developing technology for driverless vehicles, which will shut operations.

VW's initial investment was valued at $2.6bn (about R47.2bn), including $1bn in cash and the $1.6bn value of VW’s European self-driving unit, which was absorbed into Argo. VW also bought Argo shares from Ford for $500m.

Both companies shifted spending from the business on Wednesday, dragging Ford into a net loss with a non-cash pretax impairment of $2.7bn.


subscribe Just R20 for the first month. Support independent journalism by subscribing to our digital news package.
Subscribe now