Despite the headwinds across the automotive industry, Volkswagen Group saw a more than 10% increase in 1H22 operating profits from last year. CFO Arno Antlitz said the environment and competition in 2H22 and 2023 are expected to become more intense, but the group is well-prepared for the challenges.
Volkswagen released its 1H22 financial report on July 28. The group created sales revenue of EUR 132.3 billion (US$134.8 billion) with the first-time consolidation of Navistar International, a US-based truck manufacturer. The revenue increased 2% from 1H21.
The group's operating profit before special items increased 16.1% to EUR 13.2 billion, with the passenger cars business holding a 10.4% margin.
In terms of the electric vehicle (EV) business, Volkswagen's worldwide BEV deliveries grew 27% in 1H22 to 217,000 vehicles, with order intakes in Western Europe increasing by 40%. However, overall deliveries in 1H22 decrease 22% due to supply chain disruptions and COVID-induced lockdowns in China.
BEV currently accounts for 6% of the group's total deliveries. According to the report, Volkswagen aims to grow the proportion to 7-8% in 2H22. To achieve the goal, it is ramping up production in Emden and Hanover in Germany as well as Chattanooga in the US. In a conference call, Antlitz said the capacity of the three locations would materialize in 3Q and 4Q this year.
The CFO also said three major issues are disrupting supply chains now. First, the ongoing war in Ukraine impacted the local wiring harness supply but the issue is under control. Suppliers are running two shifts. In some cases, production has been relocated to North Arica or other Eastern Europe countries.
As for the chip shortages, Antlitz said Volkswagen expects the problem to be eased in 2H22 but will continue to 2023. With that, competition in the industry is likely to become fiercer. The company is preparing for a more difficult environment especially in Europe and the US, ramping up businesses in China.
According to Volkswagen's 1H22 report, China took up 29% of BEV sales and represented the group's second-largest BEV market. Deliveries grew threefold to 63,500 vehicles in 1H22.
While COVID-induced lockdowns hit the production in 2Q in China, Antlitz said situations in the region have improved and the group does not expect another significant restriction to come.
With high demand and supply issues, Volkswagen Group's customers still need to wait a while for their cars. According to Antlitz, Audi will likely take up to a year to fulfill an order. Some Volkswagen BEVs also have longer wait times.
The CFO said by the end of 2023, the group hopes to reach the inventory level it had at the beginning of this year. It would be challenging but important to achieve the company's free cash flow and working capital targets.
Rising raw material pricing is another issue that Volkswagen must deal with. Antlitz said the group had a solid 1H22 that would compensate for raw material pricing and competition in the year's second half. He added that the group is well-prepared for the challenges by showing fixed cost discipline and Capex discipline, expecting to grow volume in 2023.
In early July, Volkswagen broke ground on its first in-house battery cell plant in Salzgitter, Germany. The production will begin in 2025. When asked about what the group has done to secure cells before self-made batteries arrive, Antlitz said it has contracts with partners in Europe, the US and China to ramp up 20% of battery supply by 2025.
As for Volkswagen's 2022 outlook, the group aims to increase deliveries by 5-10% from 2021, growing sales revenue by 8-13%.
