VW third-quarter profit falls 12% on chip shortage

Automotive Industry

Source: Automotive News Europe, 2021-10-28

Volkswagen Group cut its outlook for deliveries, toned down sales expectations and warned of cost cuts as an ongoing shortage of microchips hit third-quarter earnings.

Operating profit for the quarter fell 12% to €2.8bn ($3.25bn), the automaker said in a statement on 28 October. Profit margin dropped to 4.9% from 5.4%.

"Following a record result in the first half of the year, the semiconductor bottlenecks in the third quarter made it abundantly clear to us that we are not yet resilient enough to fluctuations in capacity utilisation," Chief Financial Officer Arno Antlitz said.

"This clearly shows that we must continue to work resolutely on improving our cost structures and productivity in all areas," Antlitz added.

Group deliveries dropped by 24% to 1.97m in the third-quarter as the semiconductor shortage forced the VW, Skoda, Audi and Seat brands to temporarily stop some production lines, VW said.

As a result of the supply crunch, VW now expects deliveries in 2021 to be in line with 2020, having previously forecast a rise.

Like other automakers, VW has navigated the chip crisis by focusing production on its most lucrative models to keep up returns with the Porsche and Audi luxury brands. 

Sustaining profit is vital for VW to bolster the industry's most ambitious electric-car rollout plan. VW aims to overtake Tesla as the world's largest seller of EVs by the middle of the decade.

VW's main factory in Wolfsburg, Germany, faces an order backlog of more than 130,000 Golf models, worker representatives said this month. That equals roughly four months of production and comes on top of 110,000 orders for the brand's best-selling Tiguan SUV, they said.

Supply disruptions will weigh more heavily on margins at VW than on those of German peers Daimler and BMW due to higher costs, Sanford Bernstein analyst Arndt Ellinghorst said in a report in October 2021.

VW's fixed costs are more than 30% of revenue, compared with about 25% for its peers, he said.

VW is targeting an adjusted operating profit margin between 6%  and 7.5% in 2021 after generating €11.4bn in profit in the first six months. That’s more than the €10bn profit it made in all of 2020 when the COVID-19 pandemic emptied showrooms and factory floors.

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