A challenge for Volkswagen to meet targets

Volkswagen is facing new competition from China.
Volkswagen is facing new competition from China.PHOTO: REUTERS

The German carmaker says meeting delivery goals while avoiding deep discounts will be a 'titanic task'

FRANKFURT • Volkswagen warned that it will take a huge effort to meet delivery targets this year, as the world's largest carmaker battles trade tensions and stricter emissions rules while preparing to amp up its digital investments.

Tougher pollution-testing procedures, aimed at preventing a repeat of Volkswagen's cheating scandal, will take effect next month and lead to production slowdowns, the German carmaker said on Wednesday.

It is also bracing itself for higher tariffs around the globe, which could particularly hit Audi and Porsche, the group's main profit earners.

"Protectionist tendencies are escalating worldwide," chief executive Herbert Diess said in a speech on Wednesday.

Meeting delivery goals while avoiding deep discounts this year will be a "titanic task", said Mr Diess, who recently completed his first 100 days in office.

Looking ahead, he is trying to ready the carmaker for coming challenges, from electrification to self-driving cars to new businesses like car-sharing.

The company needs a "massive expansion" in software and in its digital investments, including partnerships and acquisitions, as it faces new competition from China and the United States' West Coast, he said.

Volkswagen shares fell after the company, based in Wolfsburg, Germany, said it would not be able to repeat the 23 per cent surge in profit it reported for the second quarter of the year.

The challenges range from economic volatility and increasing competition to the costs of the ongoing diesel scandal and new, time-consuming exhaust testing in the European Union, it said.

The cost of implementing Worldwide Harmonised Light-Duty Test Procedure (WLTP) tests may reach €1 billion (S$1.6 billion), chief financial officer Frank Witter said on a call. The carmaker churned out more vehicles ahead of the rules change, as production jumped 13.5 per cent in the second quarter, twice the growth rate of deliveries. Volkswagen said earlier this year that the company may experience inventory build-up ahead of the Sept 1 introduction of the WLTP.

Mr Diess is grappling with political challenges alongside an internal overhaul in the aftermath of the three-year-old diesel crisis, which continues to burden the industrial giant.

In the second quarter, the company took €1.64 billionin charges, mainly for a fine from German authorities, raising the total damages to about €27.4 billion. Mr Rupert Stadler, the now-suspended head of the Audi luxury unit, was arrested in June by Munich prosecutors and remains in custody.

While Volkswagen is investing in technology, Mr Diess does not see a need for sweeping auto-industry consolidation.

A recent joint venture with Ford in light commercial vehicles will allow the companies to pool development costs for electrification, he said, taking the edge off one-time expenditures in areas like battery-powered and self-driving cars that are hitting at once.

"We cannot rest on our laurels because great challenges lie ahead of us in the coming quarters," Mr Diess said. "Growing protectionism also poses major challenges for the globally integrated automotive industry."


A version of this article appeared in the print edition of The Straits Times on August 04, 2018, with the headline 'A challenge for Volkswagen to meet targets'. Print Edition | Subscribe