Volkswagen (ETR) shares fell on Thursday following the announcement that its cost-cutting period will extend beyond the second half of 2024. The company is implementing a substantial €10 billion ($10.83 billion) savings plan, with up to €4 billion in cuts planned for 2024.
Key Financial Highlights:
Operating Result: The operating result decreased to €10.1 billion from €11.3 billion in H1 2023, impacted by non-operating factors such as severance programs and business closures.
Revenue: Despite the cost-cutting measures, revenue increased to €158.8 billion, up from €156.3 billion in H1 2023, driven primarily by strong performance in Financial Services.
Operational Challenges and Strategic Initiatives:
Automotive Division: The division faced a cash outflow of €0.1 billion due to increased investment in new models and supply chain challenges. Vehicle sales dipped slightly, but growth in North and South America helped offset declines in other regions.
Electric Vehicles: In Western Europe, demand for electric vehicles increased, contributing to a higher order intake.
Strategic Progress: Volkswagen has made significant progress in its strategic initiatives, including advancements in software development and key product programs.
Management Commentary:
Arno Antlitz, Volkswagen’s CFO and COO, acknowledged the company’s challenges: “A margin of 6.3% after six months is below our ambitions and potential, given our array of great vehicles, our brand portfolio, and our global footprint.”
Future Outlook:
Full-Year Outlook: Volkswagen confirmed its full-year outlook, expecting sales revenue growth of up to 5% and an operating return on sales between 6.5% and 7%.
Investment Plans: The company plans to invest between 13.5% and 14.5% in the Automotive Division.
Net Cash Flow: Automotive net cash flow is expected to be between €2.5 billion and €4.5 billion.
Conclusion:
Volkswagen’s extended cost-cutting measures reflect the company’s commitment to improving efficiency and profitability amidst various operational challenges. While the immediate impact has led to a decrease in operating results, the strategic focus on growth areas such as electric vehicles and software development positions Volkswagen for future success. The market’s reaction to the extended cost-cutting period underscores the ongoing scrutiny of Volkswagen’s financial performance and strategic direction.
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