VW will redouble cost-saving efforts after disappointing Q3 margins

Volkswagen Group plans to redouble cost savings following disappointing third-quarter margins, with falling demand in Europe and China adding urgency to efforts to slim down bloated operations.

VW Group reported a return on sales of 6.2 percent during the quarter, which compares with a long-term goal of more than 10 percent across the group.

High costs in its VW volume brand group weighed on the result. The company also took a major hit from raw materials hedges.

Like many other industrial companies, automakers hedge against commodity price swings, potentially leading to non-cash gains or losses, usually at the end of each quarter.

This led to a 2.5 billion euro ($2.64 billion) non-cash loss in the third quarter that VW will not be able to offset by the year-end.

"The further development of the commodity markets remains unpredictable," VW said.

"We cannot be satisfied with our profitability, which in the third quarter fell short of our ambitious targets," CFO Arno Antlitz said on Thursday.

A program targeting 10 billion euros ($10.6 billion) in savings at the VW brand is delayed, but some measures have already been implemented, Antlitz said.

"There will be communication as soon as they are ready. We shouldn't be worried about a month or two delay," Antlitz said of the plans.

In China, a key market for VW Group and where it has enjoyed a market-leading position in the combustion engine era but is now competing against a swath of local producers, it may lose battery EV market share in the next year or two until the two models it is producing with China's Xpeng come to market, Antlitz said.

The company may see "slightly higher market share losses in the next one to two years ... then we will catch up from 2026 onward with full competitiveness," Antlitz said.

VW brand announced in July it will partner with Xpeng to produce two midsize models that will carry the VW logo but feature Xpeng's software and autonomous driving expertise. Those models will be rolled out in three years.

VW is sticking with its electric vehicle prices despite reductions at some rivals.

VW joined a chorus of carmakers and analysts warning in recent days that demand for electric vehicles is not developing as expected, with the group's own order intake for EVs down to 150,000 in Europe from 300,000 last year.

Still, orders increased slowly in the third quarter from the first half and should rise further in coming months, Antlitz said, adding the company was sticking to its targets.

VW Group's planning round, where it sets budgets for five-year spending, will conclude in mid-November. Production plans for forthcoming models are already broadly in place.

Antlitz said the company would no longer communicate results directly afterwards, instead updating shareholders at the automaker's annual news conference in March.

VW had released preliminary third-quarter results on Friday that cut its profit margin outlook for the current year, disappointing investors.

VW on Thursday confirmed it posted 78.8 billion euros in third-quarter sales and a 14 percent rise in operating profit to 4.9 billion euros.

The company said it still expects to deliver between 9 million and 9.5 million vehicles to customers this year, and for groupwide revenue to be 10 percent to 15 percent higher than in 2022.

Margin slump

VW Group's mass-market group, which also includes the Skoda, Seat and Cupra brands, has been hit by high costs that offset stable prices and rising deliveries.

During the first nine months, the VW brand's operating margin fell to 3.4 percent from 4.7 percent a year ago.

Mercedes-Benz on Thursday also warned of rising costs and a weaker global economic environment impacting its margins.

Reuters contributed to this report.