Volkswagen Intensifies Cost-Cutting Measures to Revive Profit Margins, Reports Reuters

Volkswagen Faces Major Cost-Cutting Measures to Improve Profit Margins

Volkswagen has indicated that substantial cost-cutting initiatives will be necessary in the latter half of this year and beyond to restore profit margins, following the release of first-half margins that the company deemed "too low."

The German automaker is further reducing its production capacity and adjusting its software expenditure after its investment in electric vehicle manufacturer Rivian. The company has already decreased production capacity by 25% at certain facilities, including its main plant in Wolfsburg, as part of a wider strategy to lower capacity by 10% across Europe.

In an effort to stay competitive against companies such as Tesla and China’s BYD, Volkswagen is overhauling its global vehicle lineup, particularly focusing on customized electric vehicles for the Chinese and U.S. markets. However, like many industry players, Volkswagen is grappling with slower-than-expected demand for electric vehicles, supply chain issues, and escalating costs, despite regulatory attempts by European and U.S. authorities to limit the influx of inexpensive Chinese EVs through tariffs.

CEO Oliver Blume announced that the company would extend its combustion engine offerings and potentially introduce new models across its brands without increasing overall investment spending. The focus on cost management will lead to a reduction in investment spending for the 2025-2029 period, from 180 billion euros to approximately 165 billion euros for 2024-2028.

Blume emphasized, "It’s about costs, costs, and costs." Volkswagen is actively pursuing a 10 billion euro savings initiative announced in December, which includes anticipated cuts of up to 4 billion euros in 2024. However, according to Chief Financial Officer Arno Antlitz, the effects of certain measures, such as incentivizing early retirements, will take time to materialize.

In its second-quarter earnings report, Volkswagen reported earnings before interest and taxes of 5.46 billion euros, a slight decrease from 5.6 billion euros in the previous year, aligning with analyst expectations following a downward revision of its 2024 margin guidance.

Volkswagen’s shares fell by 1.6% in morning trading. The operating margin for its core VW brand declined to 5% in the first half of the year, impacted by restructuring costs, while premium brand Audi also faced reduced returns due to supply chain challenges. Antlitz acknowledged that a group return of 6.3% for the first half was insufficient, insisting that significant cost-cutting actions are necessary moving forward.

Additionally, Volkswagen revealed plans to invest up to $5 billion in Rivian to collaborate on EV platforms and software. This decision has raised questions about the future of its software division, Cariad, which has faced delays and financial losses since its launch. As a result of the Rivian partnership, investments in Cariad are expected to decline.

Although Cariad aims to enhance Volkswagen’s infotainment and connectivity efforts, the development of the next-generation software platform will be based on the joint venture with Rivian, according to Antlitz.