Volkswagen earnings surged to record levels for the first half of 2021, despite the ongoing shortage of semiconductor chips crippling global automotive production.
The automaker on Thursday raised its profit margin for the rest of this year, the second time it has done so in recent months. But the European giant did acknowledge it faces challenges going forward, including not only the chip shortage but also the weak reception some of its new products have received in China, its single-largest market.
“The risk of bottlenecks and disruption in the supply of semiconductor components has intensified throughout the industry,” VW said in a statement announcing its latest financial performance.
VW has vied for king-of-the-hill sales status with two key competitors in recent years, the Renault-Nissan-Mitsubishi Alliance and Toyota. But the German company is in the midst of a dramatic shift from traditional gas and diesel-powered vehicles to ones running solely on batteries that raises numerous questions about its future.
The company has committed more than $85 billion to the transition, with the first wave of battery-electric vehicles now in production, starting with the little Volkswagen ID.3 hatchback and ID.4 SUV, as well as the Audi e-tron SUV. A full-on blitz to follow in the coming years, and several brands, including Bentley and Audi, are moving towards a point when they will completely stop selling vehicles using internal combustion engines.
On Wednesday, CEO Herbert Diess made it clear that there’s no backing down. “Our electric offensive is picking up momentum and we will keep on increasing its pace in the months to come,” he told reporters.
Demand for its electrified vehicles has been strong in Europe, as well as in North America. But, despite Diess’s confidence, new BEV models have received a lukewarm reception in China. Complicating matters, VW’s more traditional models have been losing ground there, as well.
That will require the automaker to “reinvent” itself in China, Diess said, according to a report in the Financial Times. “We are resetting our sales operations to address younger customers,” he added.
Despite its troubles in China, VW reported an operating profit of 11.4 billion euros, or $13.55 billion, for the first half of this year. That blew past the company’s previous H1 record of 10 billion euros set in 2019.
The company offered a bullish projection for the rest of the year, announcing a target of a 6% to 7.5% return on sales, or RoS, for the full year. It previously expected its RoS to run somewhere between 5.5-7.0%.
Big jumps in sales forecast
Officials also suggested that vehicle sales should be up “significantly” for all of 2021 — no big surprise considering the hit VW, like its competitors, took in pandemic-ravaged 2020 when sales fell to 9.3 million. In 2019, it sold 10.97 million vehicles worldwide through its 14 brands.
VW’s push into electrified vehicles is just one of the big bets backed by Diess. The company also announced it and partners are making a $3.4 billion bid for European rental car giant Europcar. Longer term, Diess said, the goal is to transform it into a centerpiece of the company’s mobility services operations.