More electric vehicles, thinner margins. Volkswagen struggles with the costly transition to electricity

Volkswagen Group is selling more electric vehicles, but their lower profitability is weighing on results. Accounting write-downs also contributed to the billion-dollar loss.

Electric vehicles are attracting more customers

Volkswagen sold 209,100 battery-powered electric vehicles worldwide in the third quarter. This represented a 19.6% year-on-year increase. Demand for electric cars continues to grow, and they now hold significant importance in European orders for the group.

As of the end of September, electric vehicles accounted for 40% of Europe’s pending order backlog. This figure shows how dramatically the composition of future deliveries is changing. It includes models from the entire Volkswagen Group.

The range of smaller urban electric vehicles is also attracting customers. The Volkswagen ID. Polo, ID. Cross, Cupra Raval, and Škoda Epiq models together received approximately 150,000 orders. This more accessible lineup is beginning to yield results.

Lower Profits from Electric Vehicles

Arno Antlitz, the group’s CFO, admitted that Volkswagen currently earns less from electric cars than from vehicles with internal combustion engines. The increasing share of electric vehicles is thus putting pressure on overall profitability.

In the first nine months, operating profitability before one-time items was 3.8%. This meant that out of every 100 euros in sales, the group retained just under 4 euros in operating profit. According to Antlitz, such results are not sufficient for further development.

The automaker needs to finance new models, technologies, and production modernization. With low margins, the space for such investments is shrinking. As a result, management is pushing for cost reductions across the group and more efficient factory operations.

Accounting Depreciation Deepened Quarterly Losses

In the third quarter, the conglomerate reported an operating loss of 5.86 billion euros. The results were significantly impacted by one-time items amounting to 7.8 billion euros. Over the first nine months, their total value reached approximately 8.7 billion euros.

The largest item was a reduction in the accounting value of goodwill related to Porsche by 6.4 billion euros. This represents a value beyond individual assets, associated for example with expected earnings. This write-down does not constitute an immediate outflow of cash.

Another approximately 1 billion euro came from a reduction in the accounting value of assets in China, which the conglomerate fully includes in its results. It is the scale of these one-time adjustments that helps explain the depth of the quarterly loss.

Volkswagen seeks billions in cost savings

In addition to the lower margins on electric vehicles, the group is burdened by U.S. tariffs, a difficult situation in China, and strong European competition. Management has prepared a cost-saving program worth approximately 31 billion euros aimed at improving the group’s financial performance.

The plan includes a simplified model lineup and organizational structure, lower production costs, and restrictions on administrative expenses. Volkswagen also wants to make better use of its factories. These savings are intended to create room for further investments in new vehicles.

It is crucial for Volkswagen to increase profits per electric vehicle sold. Rising orders give it the opportunity to better spread development and production costs. However, a higher number of vehicles delivered alone does not yet ensure sufficient profitability.

Sources:

Original text / Elektrickevozy.cz

Volkswagen Group

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