Volkswagen Group expects to be fined by the European Union this year for failing to achieve its CO2-reduction target for its new-car fleet -- despite the automaker's deal to pool emissions with Chinese-owned U.K. brand MG Motor.
"We cannot provide a clear commitment at this point that we will achieve compliance. It will be a difficult race," VW Group sales chief Christian Dahlheim said during the automaker's third-quarter earnings call on Oct. 29.
VW had hoped its new ID3 full-electric compact hatchback would help ensure carbon compliance, but software issues plagued its September launch. Current orders for the ID3 were a little more than 40,000, Dahlheim said.
VW CFO Frank Witter told financial analysts that the automaker has set aside funds to cover the likely costs of the fine.
"We have [booked] a couple hundred million in provisions to be on the safe side," he said.
Witter said the fine would only represent a "snapshot" in time because the automaker was "quite comfortable" about compliance next year and in the longer term for the European market.
Through 2029, Volkswagen plans to launch 75 different full-electric models across the group's brands, which include Porsche, Audi, Bentley, Skoda and Seat, and sell a cumulative 26 million battery-driven vehicles, mainly built on its MEB architecture.
"Certainly it would be great to already be compliant in 2020, but we are talking a 10-year horizon at the end of the day," Witter said. "If there was a small miss, it would not be great, but it would not be the end of the world."
Since VW already provisioned for the eventuality -- an accounting measure only allowed when a cost is deemed likely -- earnings in the fourth quarter would not be affected. "There is no negative EBIT effect to be expected. Any risk that potentially could occur has been taken care for," Witter told analysts.
VW CEO Herbert Diess said the automaker will be within only "a gram or so" of its EU target. "We haven’t given up yet, but it will be very tight to achieve the fleet targets," he told the Financial Times in an interview published on Tuesday. VW could meet the target if sales of low-emission cars continued to pick up in the last months of the year, Diess said.