Prioritizing “value over volume”: The Volkswagen automaker on Wednesday unveiled a sweeping plan to improve its financial performance, thanks to cost control and the growth of electric vehicles in the United States and China.
This program was presented by the German group on the occasion of its investor day.
“While the majority of revenue is still generated in Europe, the growth engines of tomorrow will be China and North America,” Chief Executive Oliver Blume told reporters.
“We focus on margins,” he added, saying we favor “value over volume.”
The goal now is to reach an operating margin of 9-11% by 2030, up from 8% last year.
In these key performance indicators for automakers, the leading European automaker lags behind competitors such as Stellantis, whose operating margin reached 13% of sales in 2022, almost on a level with Tesla or Mercedes.
Volkswagen is also aiming for an annual increase in sales of 5 to 7% per year until 2027.
Cost reduction
Arrived at the controls of Volkswagen last September, Oliver Blume presented on Wednesday the details of a global transformation plan for the group aimed at improving its financial performance.
“We will focus on profitability, reducing fixed costs and generating cash flow”, summarized Oliver Blume.
The company wants to focus first on cost reduction thanks, in particular, to “improve the efficiency of factories and production processes” to “reduce overhead costs.”
In mid-June, it announced that this reorganization would focus on the group’s main and historic brand, VW automobiles. The group’s management did not specify whether these cost reductions will imply job cuts.
To achieve this goal, the group with ten brands -among them Porsche, Audi or Skoda- explains that it wants to make them “more autonomous” and improve the “synergies” between them. Rather than dedicate a production site to each brand, “we will pool certain costs under a common platform,” Oliver Blume detailed.
In China, Volkswagen wants to remain “the most important foreign manufacturer” by maintaining its current market share of around 15%, while sales of electric vehicles experience a meteoric rise. In this country, where Volkswagen still makes 40% of its sales, the place of the German giant is threatened by local manufacturers specializing in electrical equipment and by the American Tesla.
Oliver Blume acknowledged the challenges posed by the “dramatic speed and evolution of technology and innovations” in China, where “a host of new entrants” have emerged.
Audit in Xinjiang
“We have a comparative advantage over these start-ups. We are very strong in thermal vehicles that will continue to be important in the coming years to generate cash for investment”, affirms the CEO.
Volkswagen has also said it wants to conduct an “independent and transparent audit” of its factory in China’s Xinjiang province, where human rights organizations raise allegations of forced labor and mistreatment of the Uyghur minority.
The United States is also a priority market for Volkswagen. “We have all the ingredients to grow in this market, both in technology and finance,” said Arno Antlitz, the company’s chief financial officer.
Another important project: the revision of the software strategy, with the revision announced in May of the subsidiary Cariad, responsible for coding the software for future electric and autonomous models.
The problems in this division are related to internal disagreements and overwork, which has caused delays in the development of software platforms.
After having recently reviewed the management of the subsidiary, the goal is now to launch the first two car models with Cariad software in 2024, the Audi Q6 E Tron and the electric Macan from Porsche.
Setbacks at Cariad, an entity directly supervised by former Volkswagen boss Herbert Diess, were a major reason for the latter’s early departure last summer.
Source: BFM TV
