Volkswagen AG cut its guidance for a second time this year, warning that waning demand will undercut the German carmaker’s profitability as it squares off with unions over possible job cuts and unprecedented plant closures.
The manufacturer said Friday that it now sees an operating margin of 5.6%. That’s down from a prediction of as much as 7% in July, when VW previously lowered its expectations, partly due to expected costs from closing an Audi plant in Belgium. Net cash flow in the automotive division is now expected to be less than half the level the company had foreseen.
All three major German carmakers — Volkswagen, Mercedes-Benz Group AG and BMW AG — have now warned about their profit this month. They’re each struggling with slower sales in China, where buyers are holding back because of a deepening real estate crisis. Rising competition in electric vehicles also is driving steep discounts and crimping margins, all while declining consumer confidence saps demand for combustion-engine cars.
Volkswagen’s outlook cut adds to the challenges for Chief Executive Officer Oliver Blume, who has warned that costs in Germany are too high as EV growth slows and Chinese manufacturers led by BYD Co. push into Europe.
The company is considering plant closures in Germany for the first time in its history and has scrapped decades-long job security pledges as it tries to become more competitive. Executives have flagged about two car plants’ worth of excess capacity, which put them on course for a protracted conflict with powerful labor groups.
“The news aids the VW brand’s case to close overcapacity in Germany,” Bloomberg Intelligence analyst Giacomo Reghelin said. “As with Mercedes, we expect further profit warnings to follow.”
VW now expects net cash flow in the automotive division to reach around €2 billion ($2.2 billion), down from as much as €4.5 billion previously, partly because of M&A activities including a partnership with Rivian Automotive Inc. on EV technology.
Volkswagen said its namesake passenger-car brand and its commercial vehicles unit are performing below expectations. It flagged added risks for its high-volume carmaking group, which also includes Skoda and Seat, citing a “deterioration in the macroeconomic environment.”
The company’s global deliveries will drop to around 9 million units this year, from 9.24 million in 2023, VW said Friday. The automaker had previously forecast a 3% increase.
Earlier this month, rival BMW warned its 2024 earnings would be significantly lower than a year ago after a faulty braking system from supplier Continental AG prompted a recall and halt to deliveries of some 1.5 million vehicles. The auto-making operating margin would be as low as 6%, compared to a previous low of 8%, the company forecast.
Mercedes-Benz followed with its own warning as the deepening rout in China hurt sales of its most expensive models like the S-Class and Maybach sedans. Adjusted returns this year would be between 7.5% and 8.5%, compared with an earlier forecast of as much as 11%, and earnings before interest and taxes will be “significantly below” the prior year level, the automaker said last week.