Technicians work in the assembly line of the ID electric car. 3 car in Dresden, Germany, 8 June 2021.
Matthias Rietschel | Reuters
Volkswagen posted record results for the first half of the year on Thursday while increasing its profit margin target.
The results are a significant improvement over the same period last year when demand was devastated at the height of the Covid-19 pandemic.
The German automaker posted operating profit before special items of 11.4 billion euros ($ 13.5 billion) in the first half of the year, beating pre-pandemic levels due to increased demand for premium cars in Europe and America while the Electric vehicle deliveries almost tripled.
Volkswagen has thus raised its profit margin target for the second time within three months. The company now expects an operating return on sales between 6% and 7.5%, after 5.5% to 7% previously.
“The record result in the first half of the year is clear evidence of how strong our brands are and how attractive their products are,” said CEO Herbert Diess.
“The premium segment has developed particularly well with double-digit returns, as has financial services. Our electric offensive is picking up speed.”
However, the group lowered its forecast for deliveries in 2021 under “challenging market conditions”.
“Challenges arise in particular from the economic situation, the increasing intensity of competition, volatile raw material and foreign exchange markets, the safeguarding of supply chains and more stringent emission-related requirements,” says the results report. Like many large automakers, Volkswagen is feeling the scarcity of global semiconductors.
Diess told CNBC on Thursday that while the shortage has not had a significant impact on profits so far, it is now making itself felt.
“We have production bottlenecks right now for the next two or three weeks, and then we believe the situation will improve,” he told CNBC’s Squawk Box Europe.
“So we’re going to see the numbers deteriorate in the third quarter and then see a recovery in the fourth quarter.”
Diess suggested that the recovery in demand would be enough to offset the various challenges to the outlook in 2022.
“We can’t really say how Covid will come back in some of our markets, but our order intake is really high, EV sales are strong, premium brands are doing great and we have a very good backlog,” said said.
“Unless we see a major setback from Covid, we should continue to grow in the first quarter of 2022.”
Here are the quarterly highlights:
- 2.55 million vehicles were delivered in the second quarter, compared with 1.89 million in the first half of 2020.
- The quarterly group turnover was 67.29 billion euros after 41.08 billion euros in the same period of the previous year.
- The operating result before special items was 6.55 billion euros after -2.39 billion euros in the previous year.
By 2030, half of Volkswagen’s sales are to be battery electric vehicles, said the German carmaker in a recently published strategy update, while by 2040 almost 100% of its new vehicles in the most important markets are to be emission-free.
These goals are part of Volkswagen’s broader goal of being completely climate neutral by 2050, and Volkswagen has earmarked € 73 billion in future technology development between 2021 and 2025, which is roughly 50% of the company’s total investment.
The Volkswagen share has risen by more than 34% since the beginning of the year.
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