Volkswagen slashes 2024 outlook amid sales crisis

For the second time, Volkswagen, Germany’s largest automaker, has cut its 2024 revenue and profitability forecasts, signaling a deepening crisis within the German automotive industry. Citing a challenging market environment, the company announced on Friday that it now expects lower sales and earnings than previously projected.

Volkswagen initially forecasted a revenue increase of up to 5% for 2024. However, the group now anticipates a decline, with revenue projected to fall to €320 billion, down from €322 billion in 2023. Vehicle sales are expected to shrink to 9 million units, compared to the 9.2 million sold last year. This is a drop from the previously forecasted sales increase of 3%.

Joined by Mercedes and BMW

The automaker also revised its operating margin outlook, which measures profitability, down to 5.6% from the earlier estimate of 6.5% to 7%. This lowered guidance is a stark reflection of the pressures faced by Volkswagen and other German carmakers, particularly in their key market of China, where economic challenges and growing competition from domestic electric vehicle (EV) manufacturers have weighed heavily on demand.

Volkswagen is not alone in grappling with the fallout from slowing global sales. German luxury carmakers Mercedes-Benz and BMW have also lowered their profit forecasts.

Mercedes-Benz has similarly adjusted its targets for the second time this year, while BMW’s situation is somewhat different. Part of its slowdown stems from the need to contend with a massive vehicle recall due to faulty braking systems.

MEB+ might bite the bullet

Volkswagen, however, appears to be the most vulnerable of the three major German manufacturers. CEO Oliver Blume has repeatedly emphasized the urgent need for cost reductions, warning that failure could jeopardize the group’s future.

The company has already taken drastic measures, including plans to cut jobs (reportedly up to 30,000, which the carmaker strongly denies) and potentially close factories in Germany—a first in its over 80-year history.

Overproduction issues mean that the group has two factories too many. The unions, led by self-declared “defender of the Volkswagen family” Daniela Cavallo, strongly oppose this plan and have vowed to do everything necessary to stop it.

Meanwhile, Volkswagen’s Chief Financial Officer, Arno Antlitz, is considering significant reductions in the company’s investment plans, potentially scrapping a billion-euro revamp of its MEB electric modular system, called +, designed to keep models like the ID.3 and ID.4 competitive.

According to Manager Magazin, Volkswagen may slash its five-year investment budget from €180 billion to €160 billion and delay the next-generation Scalable Systems Platform (SSP) launch by three years, not arriving before 2028. This is also because, according to the newspaper, Volkswagen plans significant layoffs in its R&D department (one-third of the workforce could be ousted).

Economic malaise in China

Volkswagen’s troubles in China are particularly striking. Once the dominant player in the Chinese market, the company lost ground to local automakers, who flooded the market with more affordable EV options. BYD, in particular, has emerged as a major competitor, taking significant market share from the German automaker.

Globally, Volkswagen sold 15% fewer cars year-on-year. Currently, Volkswagen is not making losses but is struggling with a diluting cash flow, which means it needs to fund new technologies and a fresh lineup. The German Minister of Economy Habeck said he would look into aid for the carmaker but highlighted that the car group itself is foremost responsible for its financial health.