Volkswagen Cuts Annual Outlook

By Christoph Steitz and Christina Amann

FRANKFURT/BERLIN (Reuters) – Volkswagen has lowered its annual outlook for the second time in less than three months, citing weaker-than-expected performance in its passenger car division as pressure mounts on Europe’s largest automaker.

This downgrade follows similar actions by Germany’s car giants like Mercedes-Benz and BMW due to declining demand in China, the world’s largest car market.

The announcement comes just two days after Volkswagen began significant negotiations with IG Metall, Germany’s most powerful union, over pay and job security, which might result in the first closures of German factories in the company’s history.

The carmaker now expects a profit margin of approximately 5.6% in 2024, revised down from the previous estimate of 6.5-7% and below the 6.5% estimate by LSEG. Sales are projected to decrease by 0.7% to 320 billion euros ($356.7 billion), a drop from initial expectations of up to a 5% increase.

Volkswagen stated that it was altering its outlook due to a challenging market environment and disappointing performance, particularly in its Volkswagen Passenger Cars, Volkswagen Commercial Vehicles, and Tech. Components segments.

Additionally, the manufacturer has adjusted its forecast for global deliveries to about 9 million vehicles, down from an earlier projection of a 3% increase from 9.24 million vehicles in 2023.

Following Volkswagen’s downgrade, Porsche SE, which holds significant voting rights in the carmaker, has also revised its outlook downward.

Falling Demand

Shares of Volkswagen and Porsche SE are down 0.7% and 1.6% respectively.

A struggling global economy has affected Germany’s export-driven market while a concerning shortage of skilled labor and high energy prices, coupled with competition from cheaper Asian rivals, heighten pressure on local industrial leaders like Thyssenkrupp and BASF.

These challenges have tested Germany’s traditional consensus model with powerful unions, which historically has been an asset during times of rising demand but is becoming a liability when costs escalate faster than wages.

The future of the auto industry, under pressure from China, has turned into a global matter impacting Europe’s automotive leaders, who have been battling to maintain full-capacity operations.

Amid the U.S. presidential election, Republican nominee Donald Trump warned that China could surpass the U.S. in future auto manufacturing. Conversely, the Democratic Biden administration has accused China of overwhelming global markets with auto exports due to overcapacity and is planning regulations that would largely exclude Chinese vehicles from the U.S. market.

Volkswagen, set to report its third-quarter results on October 30, now anticipates net cash flow for its automotive division to be about 2 billion euros, a reduction from the previous expectation of between 2.5 and 4.5 billion euros.

($1 = 0.8971 euros)