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Volkswagen Faces 2023 Profit Hit, While Its Biggest Challenge Is Electric.

Volkswagen Faces 2023 Profit Hit, While Its Biggest Challenge Is Electric.

“Growth is likely to hit the buffers here in Germany during 2023 as sales were likely brought forward to 2022 with customers looking to benefit from the maximum government subsidies before they are cut from January 1, 2023.

Like its European competitors, Volkswagen’s profits could halve in 2023. Its traditional challenges of opaque governance and the existential threat from a China blowup remain, but next year its number one challenge will be meeting its plans for an electric future.

After being the lead dog in the mass-market electric car race, VW and its brands have fallen behind. According to French automotive consultants Inovev, VW group sales of battery electric vehicles (BEV) will reach 257,000 in 2022, around 21,000 less than last year.

“While Audi can be satisfied with its BEV sales, Skoda is stable and the (Seat) Cupra Born has made a good start, it is the VW brand itself that will probably not be able to exceed the BEV sales of the previous year. The brand itself is now adjusting its strategy for electric vehicles,” Inovev said.

“Volkswagen therefore now wants to accelerate its switch to electric vehicles,” Inovev said.

This poor performance centers on the first all-electric car, the ID.3, which has now been given a face-lift, effective next spring. Earlier this month, VW said the overall market for BEVs in Europe had “gone off track” because of booming energy prices and the semiconductor shortage.

This will come as no surprise to Matt Schmidt of Berlin-based Schmidt Automotive Research. 

BEV sales in Western Europe slowed in 2022 and will stagnate in 2023 at around 1.5 million and a market share of 14.5%, according to Schmidt. Sales will later resume a powerful surge taking them to 2.7 million in 2025 (20.0% share) and on to 9.2 million (65.0%) in 2030.

“Growth is likely to hit the buffers here in Germany during 2023 as sales were likely brought forward to 2022 with customers looking to benefit from the maximum government subsidies before they are cut from January 1, 2023. One silver lining may be the long delivery times and order books for some models such as the Audi Q4 and ŠKODA Enyaq stretching into 2024,” Schmidt said.

“Yes, ID.3 volumes have been disappointing but as VW Group is such a large manufacturer it is able to leverage the MEB platform (basic electric-car engineering) across many different models, segments and brands so I’m not sure that would worry them too much,” Schmidt said. 

Governance concerns
Investors will continue to be concerned about Volkswagen’s governance. VW is controlled by a 20-seat supervisory board where unions control half the votes and two politicians from the state of Lower Saxony often vote with labor. For decades, investors have backed off from VW shares because the clunky management structure has blocked attempts to turn the company into a normal corporation where profit-conscious shareholders call the shots.

This union domination is thought to have led to the early demise of Volkswagen group CEO Herbert Diess this year. He was replaced in September by former Porsche CEO Oliver Blume. Shareholder angst wasn’t helped when it was decided he would do both jobs.

Last month, investment banker UBS said VW’s volume brands could lose money in 2023. In a December report, UBS said the fundamental outlook for VW remains challenging. 

“We see a risk of earnings per share halving next year as we expect pricing power and product mix to deteriorate significantly,” the report said.

On Thursday, VW said its huge Wolfsburg plant will face short-time working in January because of supply chain disruption. VW has said the plant is currently building under 400,000 cars a year, less than half of its capacity to make Golfs, Tiguans, and Tourans. 

VW’s performance in China has been on the slide as market share is lost to domestic manufacturers, many of which will soon be mounting a powerful attack on European electric car markets.

Under $25,000?
VW brand plans to launch 10 new BEVs by 2026 and cover every segment, according to Inovev. A BEV under $25,000 is also planned perhaps marketed under the names ID.1 and ID.2. 

Next month at the Consumer Electronics Show (CES) in Las Vegas, VW will unveil the ID.7, said to be its answer to the Tesla Model 3. Its aerodynamics will help it achieve a range of up to 385 miles from a 77-kWh battery, VW said.

Inovev said VW faces big challenges from Tesla at the high end and new Chinese entrants with cheaper models. 

“Volkswagen as a group, but more importantly as a brand, needs to increase sales of electric cars if it wants to regain its position as world market leader. While Tesla currently dominates the BEV market in the premium segment, the market for entry-level models could soon be taken over by Chinese competitors,” Inovev said.


 

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