Volkswagen warns chip shortage to reduce output in 2021

Volkswagen, the world’s second-largest carmaker, forecasts that its operating profits for the first six months of 2021 will be in the vicinity of €11 billion. This is almost half a billion more than the €10.6 billion it made in 2020, and tops the €9.6 billion from the first half of 2019.

Wolfsburg-based Volkswagen said in a statement that its net cash flow was about €10 billion for the six months. But it warned that the “bottleneck in semiconductors has shifted and will . . . impact us in [the second half of the year]”. The Association of German Automobile Manufacturers (VDA) cut its growth forecast for 2021 car sales to 3% from 8%, citing a shortage of semiconductors affecting assembly production. It expected 400,000 fewer cars to be produced in the country in 2021.

Volkswagen Group Wayne Griffits Global Semiconductor Chip Crisis Auto

The global semiconductor chip shortage is the “biggest challenge” the company faces at the moment. (Image: Volkswagen Group)

The VDA expects car sales in Germany to be at 3.15 million units this year. However, Volkswagen said it expects its own shortfall to be a “six-digit number”.

Volkswagen car sales hit by global chip shortage

Volkswagen, which manufactures brands such as Audi, Porsche and Seat, said that it was trying to meet the setbacks from the global shortage of auto components by turning to the production of high-margin premium models, which might alleviate the financial losses somewhat.

“One quarter after the other, these guys are really doing a great job,” said Arndt Ellinghorst, an analyst at Bernstein. “It’s very refreshing to see such huge numbers from a traditional manufacturer,” he added. “It’s certainly harder earned than some of the Spac cash flying around these days.”

Another revenue generator is the company’s financial arm, which is witnessing a renewed interest in used car sales and demand for loans.

Volkswagen’s biggest market is China, which has seen demand for new cars plummet after the Covid-19 outbreak. VW’s electric vehicles the ID. 3 and ID. 4, have also not seen many takers. In China, the local electric car manufacturers have fared better as their pricing is very competitive.

Europe has turned in a better response with a higher proportion of deliveries, and here margins are higher than other regions. Its vehicles have seen strong sales in the US too.

According to the carmaker, deliveries between January and May increased 33 percent worldwide, compared with the previous year. Its truck brands Man and Scania registered the strongest growth, with sales increasing 68 percent and 61 percent, respectively.

The chief executive of VW, Herbert Diess, got a vote of confidence from the supervisory board which voted to extend his contract until October 2025. Diess, a former BMW executive who joined the group in 2015, has been responsible for turning the company’s focus on to EVs, He approved an investment of €35 billion into electric vehicles.

His cost-cutting measures at the company have seen massive clashes with workers’ unions in 2020. He has also been accused of being a silent witness in 2015 to the “Dieselgate” software fraud that could cheat emissions tests. But he was exonerated of any direct liability as he was a new joinee from BMW, and the probe report concluded that Diess was “justified in trusting that the competent Volkswagen bodies and employees would . . . communicate with the US authorities and customers in accordance with their duties”.

VW’s shares rose more than 3 percent on its latest forecast. The company is due to publish a full financial report on July 29.

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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