Volkswagen again cuts forecasts on demand, EV competition

The maker said on Friday that it now sees an operating margin of 5.6%. That’s down from a forecast of as much as 7% in July, when VW previously cut its expectations, partly because of expected costs from closing an Audi plant in Belgium. Net cash flow from the automotive division is now expected to be less than half of the company’s forecast level.

All three major German automakers – Volkswagen, Mercedes-Benz Group AG and BMW AG – have now warned about their profits this month. Each is facing slower sales in China, where buyers are holding back due to a deepening housing crisis. Growing competition in electric vehicles is also driving steep discounts and tight margins, all while declining consumer confidence weakens demand for combustion-engined cars.

Volkswagen’s cut outlook adds to challenges for Chief Executive Oliver Blume, who has warned that costs in Germany are too high as electric vehicle growth slows and Chinese manufacturers led by BYD Co. push to Europe.

The company is considering closing factories in Germany for the first time in its history and has scrapped decades-old commitments to job security as it tries to become more competitive. Executives flagged the amount of excess capacity at two auto plants, which has set them on the path of a prolonged standoff with powerful labor groups.

“The news helps the VW brand 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 from the car division to reach around 2 billion euros ($2.2 billion), down from 4.5 billion euros previously, partly due to mergers and acquisitions activities , including a partnership with Rivian Automotive Inc. on EV technology.

Volkswagen said its namesake car brand and commercial vehicle unit performed below expectations. It flagged further risks for its high-volume carmaker group, which also includes Skoda and Seat, citing a “deteriorating macroeconomic environment”.

The company’s global deliveries will fall to about 9 million units this year from 9.24 million in 2023, VW said on Friday. The automaker had previously forecast a 3 percent increase.

Earlier this month, rival BMW warned that its revenue in 2024 would be significantly lower than a year ago after a faulty brake system at supplier Continental AG prompted the recall and halt of deliveries of around 1.5 million vehicles . Automaker operating margin would be up to 6 percent, compared with a previous low of 8 percent, the company forecast.

Mercedes-Benz followed with its own warning as the disaster in China hurt sales of its most expensive models, such as the S-Class and Maybach sedans. Adjusted returns this year would be between 7.5% and 8.5%, compared with an earlier forecast of up to 11%, and earnings before interest and taxes would be “significantly below” the prior-year level, it said the automaker last week.