Volkswagen cuts yearly sales forecast, reports profit growth

German auto giant Volkswagen cut its yearly sales target on Thursday, citing poor economic conditions, but will maintain its financial targets.

Europe's largest car company reported second-quarter financial results on Thursday. Underlying operating profits rose in the first half of 2023, Volkswagen said, despite headwinds from commodity hedging trades and the cost of the company's exit from the Russian market.

In the second half of the year, however, the group's mass-market vehicle brands - particularly its core VW passenger car brand - will need to make gains.

In 2023, Volkswagen now expects to deliver between 9 million and 9.5 million vehicles to customers. The Wolfsburg-based company had forecast sales of 9.5 million vehicles, after 8.3 million in the previous year.

Analysts had doubts about whether VW could achieve its sales goals. In the first half of the year, the group delivered 4.4 million vehicles worldwide, an increase of almost 13% over the previous year.

In a conference call with analysts, top VW executive Oliver Blume tried to allay concerns about the company's backlog of vehicle orders, especially in Western Europe. At present, the backlog remains at 1.65 million vehicles, including more than 200 000 fully electric cars.

Even though there had been a certain cooling off in demand for electric vehicles due to reduced subsidies in the European business, Blume said the VW Group has seen a revival in orders since May.

Blume said that, overall, the VW Group is on the right track. He said sales figures are rising in North America, the company is strengthening its position in China through new tech partnerships and the trend for all-electric vehicles is heading in the right direction.

He said VW remains fully on track to reach its target of a 10% to 15% increase in annual sales for 2023, reaching between €307 billion ($342 billion) and €321 billion.

The company's forecast for operating profit margins, adjusted for special items, also remains unchanged at 7.5% to 8.5% in part due to a savings and earnings programme for the mass-market brands expected to take effect in the second half of the year.

In the second quarter, VW reported a sales increase of 15% over the prior year, reaching €80.1 billion. But due to higher taxes, after-tax profit fell by 3% to €3.79 billion.

VW's adjusted operating profit of €5.6 billion was almost 19% than a year ago - but fell short of analyst expectations.

As in the first quarter, the company again reported losses from commodity hedging transactions, this time for €1.2 billion.

VW also reported another €400 million in costs from exiting the Russian market, mainly due to currency conversion costs. The company wrote off much of the value of its Russian businesses last year following Russia's invasion of Ukraine.

The company fetched only €125 million for the sale of its Russian subsidiaries.

The performance of the VW Group's mass-market brands (VW, Seat and Škoda) as well as its business in China are of particular concern to the company's management.

Earlier this week, VW announced that it had acquired a 5% stake in Chinese electric car manufacturer Xpeng for $700 million. VW plans to develop two mid-range electric car models with the Chinese company, which are scheduled to be launched on the Chinese market in 2026.

The company lost its decades-long leading spot in the Chinese market this year to Chinese electric carmaker BYD. VW troubles in China stemmed from poor sales of VW electric vehicles as well as stiff competition and heavy discounts from competitors.

The share of VW Group's operating profit from the company's Chinese joint ventures fell by almost 18% to €1.15 billion in the first half of the year.

In the second half of the year, the cost-cutting programmes are to take effect at the mass-market brands.

The picture improved significantly in the first half of the year compared to the weak first half of 2022 - but the core VW passenger car brand achieved an operating return on sales of just 3.8% over the first six months. That means that, for every €100 in sales, the company made only about €3.80 in operating profit.

VW core brand boss Thomas Schäfer had already announced a multi-billion euro savings and profit programme, the details of which should be in place by autumn.

Among other things, VW is planning to merge the production of different brands in its plants and restructure sales at VW dealerships.