• Group Deliveries: 6.5 million vehicles, 3% below prior year level.
• Order Intake in Western Europe: 674,000 units in Q3, 27% up on prior year.
• BEV Deliveries: 507,000 units, 8% of group deliveries.
• Group Sales Revenue: EUR237.3 billion, up 1% year-over-year.
• Operating Result: EUR12.9 billion, margin of 5.4%.
• Profit Before Tax: EUR12.5 billion, 29% below prior year.
• Profit After Tax: EUR8.9 billion, 31% decline.
• Earnings Per Share: EUR15.2, down 33%.
• Net Cash Flow (Automotive Division): EUR3.3 billion, EUR1.6 billion below prior year.
• Automotive Net Liquidity: EUR33.4 billion.
• Passenger Cars Operating Result: EUR7.3 billion, margin of 4.7%.
• Commercial Vehicles Operating Result: EUR3.1 billion, margin of 9.1%.
• Financial Services Operating Result: EUR2.2 billion, 27% decline.
• China JVs Proportionate Operating Result: EUR1.2 billion, down 37%.
• Full Year Outlook 2024: Sales revenue around EUR320 billion, operating profit around EUR80 billion.

• Warning! GuruFocus has detected 2 Warning Sign with VLKAF.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Volkswagen AG (VLKAF) launched several new and exciting models, including the ID.7 GTX, which is the most powerful electric car from the Volkswagen brand.
• The company made significant progress in forming a joint venture with Rivian, receiving all necessary regulatory approvals and proving the technical feasibility of the Rivian architecture.
• Volkswagen AG (VLKAF) reported a solid order intake in Western Europe, with a notable increase in BEV order intake, more than doubling compared to the end of 2023.
• The company maintained a strong net liquidity position of EUR33.4 billion, providing a solid financial foundation.
• Volkswagen AG (VLKAF) continues to focus on reducing investments in R&D and CapEx, aiming for EUR165 billion in the next planning round, leveraging synergies across the group.

Negative Points

• Volkswagen AG (VLKAF) reported a 3% decline in vehicle deliveries, particularly impacted by a 10% decrease in China.
• The company's operating margin of 5.4% is below its target and ambition, highlighting the need for cost reduction and improved competitiveness.
• Profit before tax declined by 29% year-over-year, and profit after tax fell by 31%, reflecting financial challenges.
• The company faces significant restructuring challenges, particularly in its German operations, to address high costs and improve productivity.
• Volkswagen AG (VLKAF) is experiencing a decline in BEV deliveries in Europe and the US, with a 14% and 26% decrease, respectively.

Q & A Highlights

Q: Where do you see the biggest cost competitive interest compared to peers, and what margin uplift are you aiming for with restructuring measures? Will these measures impact the ability to pay a dividend in 2025? A: The target for the Volkswagen brand is a 6.5% margin by 2026, with a sequential goal of 8% for Brand Group Core. The original improvement program was EUR10 billion, but due to deteriorating industry conditions, efforts have been increased. The focus is on fixed costs, overhead, and productivity, particularly in German operations. Regarding dividends, the payout ratio is set at a minimum of 30%. The current situation impacts financial results, and while additional restructuring burdens are possible, the dividend policy remains valid.

Q: What has driven the tougher stance on restructuring the German business, and is free cash flow a limiting factor? How does the CO2 compliance challenge for 2025 factor into restructuring needs? A: The need for restructuring at Volkswagen was clear early on, focusing on fixed costs, productivity, and overhead. The market environment's deterioration required increased efforts, but no single incident drove this change. Free cash flow should not limit necessary measures, as Volkswagen has solid net liquidity. For CO2 compliance in 2025, the aim is to achieve targets while protecting profitability, with positive order intake and new models providing confidence.

Q: How have you managed to stabilize pricing and increase order intake, and what is the outlook for investment needs? A: The stabilization of pricing and order intake is due to positive momentum from new models. However, BEVs currently carry higher incentives and are margin dilutive. Investment in R&D and CapEx is expected to peak, with potential improvements from the Rivian joint venture, particularly in software expenditure.

Q: Can you provide more details on the restructuring and potential impacts of strikes? What role does the government play in this? A: Specific details on potential strikes and production impacts are not disclosed. The focus is on ensuring Volkswagen achieves a 6.5% margin and can invest in future projects. The government discussion is more about CO2 regulation, but Volkswagen is focused on internal measures for competitiveness.

Q: What are the expectations for Brand Group Progressive's performance, and how does Scout fit into the strategy with Rivian? A: Brand Group Progressive aims for a double-digit margin in Q4, supported by strong product momentum. Scout is positioned in a profitable segment in North America, with synergies from group technologies and potential use of Rivian's electrical architecture. Scout and Rivian target different market segments, minimizing direct competition.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.