Volkswagen The AG cut its forecast for the second time this year, warning that slowing demand would hurt the German automaker’s profitability as it battles with unions over possible job cuts and unprecedented factory closures.
The manufacturer said Friday that it now expects an operating margin of 5.6%. That’s down from the up to 7% forecast VW previously predicted in July lowered fell short of expectations, partly due to expected costs from the closure of an Audi factory in Belgium. Net cash flow in the automotive division is now expected to be less than half of what the company expected.
All three major German automobile manufacturers – Volkswagen, Mercedes-Benz Group AG and BMW AG – have now warned about their profits for this month. They are all struggling with slower sales in China, where buyers are cautious due to a worsening real estate crisis. Increasing competition in electric vehicles is also leading to steep discounts and shrinking margins, while falling consumer confidence is weakening demand for internal combustion engine cars.
Cutting Volkswagen’s outlook adds to the challenges for Chief Executive Oliver Blume, who has warned that costs in Germany are too high as electric vehicle growth slows and Chinese manufacturers take the lead BYD Co. are pushing into Europe.
The company is considering closing plants in Germany for the first time in its history and has abandoned decades-long job security promises to become more competitive. Executives have called attention to overcapacity at two auto plants that they say point to a protracted conflict with powerful union groups.
“The news helps the VW brand reduce overcapacity in Germany,” said Bloomberg Intelligence analyst Giacomo Reghelin. “As with Mercedes, we expect further profit warnings to follow.”
VW now expects net cash flow in the automotive division to reach around 2 billion euros ($2.2 billion), down from 4.5 billion euros previously, due in part to M&A activity including a Partnership with Rivian Automotive Inc. in the area of electric vehicle technology.
Volkswagen said the performance of its namesake passenger car brand and its commercial vehicle division fell short of expectations. The company flagged additional risks for its high-volume automotive group, which also includes Skoda and Seat, citing a “deterioration in the macroeconomic environment.”
The company’s global deliveries will fall to around 9 million units this year from 9.24 million in 2023, VW said on Friday. The automaker had previously forecast a 3% increase.
Earlier this month, rival BMW warned that its profits would be expected in 2024 significantly lower a year ago, after a defective braking system from supplier Continental AG led to a recall and a stop to deliveries of around 1.5 million vehicles. The automaker’s operating margin would be just 6%, compared with a previous low of 8%, the company forecast.
Mercedes-Benz followed with one of its own warning as the worsening crisis in China affected sales of its most expensive models such as the S-Class and Maybach sedans. Adjusted returns would be between 7.5% and 8.5% this year, compared with a previous forecast of up to 11%, and earnings before interest and taxes would be “significantly below” last year’s level, the automaker said last Week.