Volkswagen Group Aims for Profitability Recovery in Second Half Amid Market Challenges

Volkswagen Group experienced a downturn in profitability during the first half of the year, with operating profit falling 11.6% to 5.9 billion euros from 6.7 billion euros in the same period last year. The company's operating profit margin also decreased from 4.2% to 3.8%. These results were impacted by the costs associated with halting ID.4 production in the United States and weak sales in the crucial Chinese market.

Global vehicle sales declined by 8.4% to 3.997 million units in the first half, with customer deliveries dropping 6.3% to 4.126 million units. China was a significant drag, with sales plummeting 31.6%. However, sales saw growth in Western Europe, Central and Eastern Europe, and South America, with a slight increase in North America.

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The restructuring we have pursued over the past three years is beginning to yield results across the Group. We will overcome the challenging business environment and achieve annual performance improvements based on cost management and electrification competitiveness.

Despite the overall challenges, the electrification sector showed signs of recovery. Orders for pure electric vehicles (BEVs) in Europe surged by over 50% compared to the previous year, now accounting for more than 30% of total orders. The new urban electric vehicle family also garnered positive market reception, securing over 70,000 orders shortly after its launch.

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An operating return on sales of 3.8% is still very low. Given the shrinking Chinese market and the offensive by Chinese companies in Europe, the currently planned improvement measures are not sufficient.

Financially, the automotive division's net cash flow improved significantly, turning from a negative 1.4 billion euros in the first half of last year to a positive 3.2 billion euros this year. This improvement is attributed to reduced investment spending, better working capital management, and cost-saving initiatives.

Looking ahead, Volkswagen anticipates a challenging business environment for the second half of the year, citing geopolitical risks, trade conflicts, increased competition from Chinese manufacturers in Europe, and raw material price volatility. Consequently, the company has lowered its full-year revenue forecast to a range of -3% to 0%, down from the previous 0% to 3% growth projection. However, it maintained its operating return on sales target of 4.0% to 5.5%.

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We must structurally lower our cost base and increase profitability through improvements in vehicle cost structures, reductions in indirect costs, enhanced factory efficiency, accelerated technological development, and simplified decision-making processes.