Semiconductors and Ukraine weigh in
VW earnings shine, but poor outlook
If you just look at the number of cars sold in the new Volkswagen Group figures, they look meager. Nevertheless, the company celebrates billions in profits – as it has made provisions for cases such as the war in Ukraine. For the near future, however, the outlook is rather bleak.
Despite the war in Ukraine and failing production due to the fight against corona in China, Volkswagen made billions in profits at the start of the year. However, the Wolfsburg-based company profited massively from the financial instruments with which the group hedged against rising commodity prices. Operating income before exceptional items jumped to around 8.5 billion euros in the first quarter, as the automaker announced based on initial estimates.
But VW did not sell more cars – on the contrary: from January to March, the automaker delivered around 500,000 fewer cars worldwide than in the same quarter of the previous year. This corresponded to a drop of almost 22%. After all, fully electric cars have seen growth: in the first quarter, VW sold around 99,000 electric cars, a 65% increase over the previous year.
Demand for electric cars is high worldwide and order books are well filled, explained Hildegard Wortmann, head of sales. Without current supply bottlenecks, that number would have been significantly higher. The figures were not well received on the stock market. VW stock was at the end of the DAX, around midday it was 1.9% in the red.
Factors of uncertainty Semiconductors, Ukraine, raw materials
A year ago, operating profit was 4.8 billion euros. Operating efficiency nearly doubled in the first three months compared to the same period a year earlier to 13.5 (7.7) percent. In addition to robust operating activity, a positive valuation of the fair value of hedging instruments of 3.5 billion euros also ensured the increase in profits, VW said. This is a crisis precaution: due to long-term hedging through financial instruments, the group continues to pay commodity prices at the level they were before the war in Ukraine. The difference with the current price level ensures an accounting profit.
Looking ahead, the management around CEO Herbert Diess explained that there was always a risk that the progress of the war in Ukraine could have a negative impact on the activities of the automaker. It could also result from bottlenecks in the supply chain. Future developments on commodity markets are also unpredictable, which could have a significant impact on the valuation of hedging transactions.
Volkswagen also spoke of the possible negative effects of an intensifying corona pandemic and the continued bottlenecks in the supply of semiconductors. However, Volkswagen has not changed its outlook for the current year. As a result, the group expects an operating return of between 7.0 and 8.5% for 2022. Sales are expected to increase by 8 to 13%.