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Home›Volkswagen Electric›Volkswagen Group strengthens expansion into global growth markets after strong Q1 results

Volkswagen Group strengthens expansion into global growth markets after strong Q1 results

By Raymond J. Nowicki
May 4, 2022
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The Volkswagen Group delivered strong financial results in the first quarter despite a difficult global environment. The key drivers were an improved revenue mix, better pricing, continued cost discipline and the flexibility offered by the Group’s global footprint. For example, Volkswagen has mitigated the effects of global semiconductor and wire harness shortages by reallocating resources between its main markets in Europe, China and America.

This resulted in sales of EUR 62.7 billion (+0.6 percent) and a robust operating result before special items of EUR 8.5 billion, including positive effects primarily from raw material hedging activities. Even without these effects, the underlying operating result of around 5 billion euros is significantly higher than in the previous year and underlines the robustness of the business.
Based on the figures and the expected better supply of semiconductors in the second half of the year, the Group confirms its outlook for 2022. However, the specific effects of the latest developments in Russia-Ukraine in particular cannot yet be conclusively assessed. The conflict or the effects of the Covid-19 pandemic on business of the Volkswagen Group, on the global economy and the growth of the industry in the 2022 fiscal year.

“Our Group once again demonstrated great resilience in the first quarter despite the unprecedented challenges the world is facing due to the terrible war in Ukraine and the ongoing pandemic situation affecting supply chains,” said CEO Herbert Diess. “As a truly global company, we have extensive production capacities in all major growth and sales markets around the world. Volkswagen’s global footprint has helped us mitigate many of the negative impacts we are currently seeing. Even in a more polarized world, Volkswagen is determined to expand its global presence and continue to drive the transformation into a sustainable and fully digital mobility provider.”

The Volkswagen Group will continue to push ahead with its expansion into the global growth markets. A particular focus is on the North American region, particularly the United States, where an ambitious growth plan is being implemented to reach the target of 10 percent market share by 2030. Battery electric vehicles (BEVs) will be a key element of this strategy, with the Group’s BEV portfolio growing to more than 25 models by the end of the decade. In addition, the group is aiming for its own battery cell production in the USA. Volkswagen recently announced a $7.1 billion commitment to strengthen its BEV lineup, R&D and manufacturing in North America.

Volkswagen has maintained a fast pace in accelerating digitization and electrification in its largest single market, China. Volkswagen Anhui will be the new e-mobility hub, with production of MEB-based models starting in 2023. A factory for battery systems will also start production there next year. The group has therefore dedicated investments of 1 billion euros each to Anhui and Gotion. In order to better tailor the user experience of the group’s software stack to the needs of Chinese customers, CARIAD has already started operations in Beijing with 600 employees and is aiming for a nationwide distributed R&D network, with Beijing, Shanghai, Chengdu and Hefei as the first hub locations are provided. Utilizing local talent is the key to enhancing the company’s R&D capability in China.

Continued strong commitment to research and development

In the Automotive Division, R&D expenses increased by 10.0 percent to 4.4 billion euros due to significant development activities for future all-electric models and technologies. The R&D rate was 8.5 percent (Q1 2021: 7.7 percent). At the same time, the group reduced its capital expenditure by 11.5 percent to 1.7 billion euros. The investment ratio thus fell to 3.3 percent after 3.7 percent in the same quarter of the previous year.

“In a challenging environment, our first quarter results show the resilience of our business. Our teams have managed to mitigate the supply chain disruptions as much as possible. A strong product mix towards higher specification vehicles combined with continued cost discipline contributed to strong first quarter results. In addition, we have benefited from our risk management in raw materials,” said Arno Antlitz, CFO of the Volkswagen Group.
“Our Q1 results and our solid net cash position show that we can and want to continuously invest in our transformation and the future of the company, even in difficult times.”

The Automotive Division’s net cash flow was approximately EUR 1.5 billion, reflecting a seasonal build-up of inventories coupled with lower production levels towards the end of the quarter.

Volkswagen is continuing to drive the change towards a sustainable mobility provider. The realignment agreed by the Group will be crucial as Volkswagen develops from a classic OEM to a vertically integrated mobility company.

The Volkswagen brands are becoming more independent, the group is focusing on overall strategy and synergies. Volkswagen’s tech platforms will also be given more autonomy to ensure they can maximize synergies across the group.

This is also reflected in the Group’s financial management model. From the first quarter of 2022, the Group will report on its Volume, Premium and Sport brand groups. In addition, CARIAD, which is responsible for the unified software stack, is visible as a separate entity, as is TRATON, which is reported without separate disclosure from Scania, MAN and Navistar.

More ambitious emission reduction targets

Open and transparent global markets are the basis for successful business. But they are also indispensable for the joint achievement of ambitious sustainability goals. The Volkswagen Group is further intensifying its efforts in this area and has raised its ambition of reducing emissions in its own production facilities from 30 percent to 50 percent by 2030 compared to 2018. The Science Based Targets Initiative (SBTi) recently confirmed that the group has increased its targets Climate targets in production now correspond to the 1.5 degree target.

Brand group results

The Volume brand group has been most exposed to the current negative effects of the war in Ukraine, the ongoing Covid pandemic and semiconductor shortages. Despite these headwinds, the Group had a good start to the year. All brands in the volume group recorded an increase in average sales prices, although sales fell by a double-digit percentage in some cases.
Margins increased for the VW, Seat and Commercial Vehicle brands. Only Skoda posted a decline as they consolidate the Russian business. The Volume brand group generated sales of €24.4 billion (€27.4 billion) and an operating result before special items of €0.9 billion (€1.4 billion).

The Premium brand group (including Bentley) was at the previous year’s level with sales of 14.4 billion euros. Operating profit before special items more than doubled to EUR 3.5 billion (EUR 1.5 billion) despite the decline in volumes. The main reasons for this were the persistently high demand for well-equipped premium vehicles, the positive effect of the fair value measurement of commodity hedges and lower fixed costs.

The Sport & Luxury brand group The 911, Panamera and Cayenne models were in high demand. Sales increased to €7.3 billion (€7.0 billion). In particular, higher earnings contributions led to an increase in operating profit of €1.4 billion (€1.2 billion). The operating margin was 18.6 percent.

TRATON’s Revenues in the first quarter of 2022, at EUR 8.4 billion, were 29.7 percent higher than in the same quarter of the previous year, which did not include Navistar’s business. The operating result was more than three times as high as in the same period of the previous year, which was burdened by restructuring measures at MAN Nutzfahrzeuge in Europe. Mix and exchange rate effects also had a positive effect.

CARIAD increased net sales from January to March of this year to EUR 110 (75) million. Operating loss increased due to higher upfront investments in our software stacks.

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