Volkswagen Lowers 2024 Outlook Amid Declining Car Demand – Reuters

By Christoph Steitz and Christina Amann

FRANKFURT/BERLIN – Volkswagen has once again revised its annual outlook, marking the second downgrade in less than three months. The automaker cited disappointing performance in its passenger car division as the pressure mounts on Europe’s leading car manufacturer.

This adjustment follows similar downgrades by other major German automotive companies, including Mercedes-Benz and BMW, which both lowered their forecasts earlier in the month due to declining demand in China, the largest car market globally.

The announcement arrives just two days after Volkswagen began crucial negotiations with IG Metall, Germany’s most influential union, over pay and job security. This ongoing conflict poses the risk of the first-ever factory closures for the automaker in Germany.

Volkswagen now anticipates a profit margin of approximately 5.6% for 2024, a decrease from the previously estimated range of 6.5% to 7%, and below the 6.5% forecast by analysts. Additionally, the automotive giant expects sales to drop by 0.7% to around 320 billion euros after initially projecting a potential increase of up to 5%.

The company stated that the revised outlook reflects “a challenging market environment and performances that have not met original expectations, particularly concerning the Volkswagen Passenger Cars, Volkswagen Commercial Vehicles, and Tech. Components brands.”

In terms of global deliveries, Volkswagen has revised its forecast to about 9 million vehicles, reducing the previous projection of a 3% increase from the 9.24 million expected in 2023.

Porsche SE, which holds the majority of voting rights in Volkswagen and is its largest shareholder, also adjusted its outlook in response to Volkswagen’s downgrade.

FALLING DEMAND

Shares of Volkswagen and Porsche SE, listed in Frankfurt, were down 0.7% and 1.6%, respectively.

The slowing global economy has adversely affected Germany’s export-centric economy, compounded by a significant shortage of skilled labor, rising energy costs, and increasing competition from more affordable Asian manufacturers. This situation places additional pressure on local industrial giants, including Thyssenkrupp and BASF.

These issues further challenge Germany’s established model of cooperative relations with powerful unions. While this model has been seen as a strength in times of increasing demand, it has started to pose a liability as rising costs outpace salary expectations.

The plight of the automotive industry, alongside pressures from China, are overarching global concerns that have affected Europe’s car manufacturers, who are struggling to maintain full production capacity.

In the context of the upcoming U.S. presidential election, Republican nominee Donald Trump has raised concerns that China might dominate future auto production. Meanwhile, the Biden administration has accused China of saturating global markets with auto exports due to overproduction and is exploring regulations that could effectively prevent Chinese vehicles from entering the U.S. market.

Volkswagen is set to release its third-quarter results on October 30 and has indicated it now expects net cash flow from its automotive division to be around 2 billion euros, a reduction from the previous estimate of 2.5 billion to 4.5 billion.