Volkswagen doubles down on cost cuts to try to revive profit margins

Volkswagen will need to make "significant cost-cutting efforts" in the second half of the year and beyond if it is to revive profit margins, the automaker said on Thursday, after reporting first-half margins it described as "too low".
 

The German group is further reducing production capacity, cutting costs and changing software spending following its investment in electric vehicle maker Rivian, it said.
 

It had already cut factory capacity by 25 per cent in certain locations, including its main plant in Wolfsburg, as part of a wider goal of reducing capacity by 10 per cent across Europe.
 

The impact of other restructuring and cost reduction measures, like incentivising early retirement, would take some time to take effect, Chief Financial Officer Arno Antlitz said.
 

"It's about costs, costs, and costs," Chief Executive Oliver Blume added.
 

Volkswagen is in the midst of a 10 billion euro ($10.8 billion) savings drive announced in December, with cuts of up to 4 billion euros due in 2024.
 

Its shares fell 2 per cent in morning trade, with second-quarter results largely in line with analyst estimates after a cut in 2024 margin guidance in July to 6.5-7 per cent from 7-7.5 per cent.
 

SOFTWARE REVAMP, COST CUTS
 

Volkswagen is revamping its line-up globally with bespoke EV models in particular for the Chinese and U.S. markets, in an attempt to defend market share in China, maintain its share in Europe and grow in the United States.
 

The company is one of several legacy automakers that have called for patience as they revamp their products to counter growing competition, even as European and U.S. regulators try to keep cheap Chinese EVs out of their markets with tariffs.
 

Volkswagen posted second-quarter earnings before interest and taxes of 5.46 billion euros, down from 5.6 billion euros a year earlier.
 

The operating margin at its core VW brand sank to 5 per cent due to restructuring costs, while premium brand Audi's returns were hit by supply chain bottlenecks.
 

"A (group) return of 6.3 per cent after six months is too low," Antlitz said in a statement. "We will have to make significant cost-cutting efforts in the second half of the year and beyond in order to achieve our goals."
 

Volkswagen said in July it planned to invest up to $5 billion in Rivian as part of a venture to share EV platforms and software, prompting analysts to question what the future held for the carmaker's software unit Cariad, which has been plagued by delays and losses since its inception.
 

Investment in the unit would fall as a result of the joint venture with Rivian, Blume said on Thursday.
 

Cariad would drive Volkswagen's efforts in infotainment and connectivity, but the next-generation software platform would be built out of the joint venture, Antlitz added.


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