Volkswagen signals continued cost-cutting as Q2 profits decline

Volkswagen warned on Thursday that its cost-cutting efforts would extend beyond the second half of 2024, as the company reported a decline in its second-quarter operating profit due to rising costs. The German automaker's earnings before interest and taxes (EBIT) for the period fell to 5.46 billion euros, down from 5.6 billion euros in the same quarter last year.

The results were impacted by several factors, including potential costs associated with the possible closure of an Audi plant in Brussels, reduced sales in China, and expenses related to the deconsolidation of VW Bank Russia. In mid-July, Volkswagen revised its forecast for operating return on sales, lowering the range to 6.5%-7% from the previous 7%-7.5%.

Chief Financial Officer Arno Antlitz expressed concern over the company's performance, stating, “A return of 6.3% after six months is too low. We will have to make significant cost-cutting efforts in the second half of the year and beyond to achieve our goals.”

Volkswagen is in the midst of a substantial cost-saving initiative, launched in December, aimed at cutting up to 10 billion euros (USD 10.83 billion) in expenses, with 4 billion euros of these cuts expected in 2024. The company is also focused on revamping its product lineup globally, with a particular emphasis on developing electric vehicles (EVs) tailored for the Chinese and US markets. This strategy is intended to help Volkswagen maintain its market share in Europe, defend its position in China, and expand in the United States.

Despite efforts to improve, Volkswagen, like other legacy automakers, faces challenges in adapting to a rapidly evolving market where new and more affordable Chinese EVs are gaining traction. European and US regulators are working to counteract this trend by imposing tariffs to limit the entry of these vehicles into their markets.

Antlitz had previously anticipated that rising orders would positively impact second-quarter results, following a 20% drop in profits reported for the first quarter. However, the company’s financial performance underscores the ongoing need for stringent cost-control measures.