Volkswagen will struggle to reverse out of this dead end

{"text":[[{"start":8.23,"text":"Can Volkswagen cost-cut its way out of a crisis? "},{"start":11.447,"text":"The automaker plans to shut several German plants and axe tens of thousands of jobs. "},{"start":15.977,"text":"At this point, though, the question is no longer whether VW needs to restructure but whether the axe will be sharp enough to excise its troubles. "}],[{"start":24.46,"text":"The German group is facing a car crash of problems, as a series of profit warnings and, more recently, a 64 per cent decline in third-quarter earnings exemplifies. "}],[{"start":34.91,"text":"China is a key issue as domestic carmakers churn out cheaper and better vehicles. "},{"start":39.739,"text":"VW’s deliveries in the region fell by 10 per cent in the first nine months of the year. "},{"start":44.607,"text":"The contribution from its joint ventures in China this year will be some €1.6bn of “proportionate operating income”, thinks VW, around half the amount in 2022. "}],[{"start":55.73,"text":"Competition from Chinese carmakers — whether in China or abroad — is structural and will not be easily reversed. "},{"start":62.284,"text":"EU tariffs on Chinese EVs will slow, rather than halt, penetration. "}],[{"start":67.88,"text":"That, plus an arguably cyclical slowdown in European vehicle sales — which this year are expected to be 14mn across the market compared to 16mn pre-pandemic — is forcing VW to grapple with its unsustainably high cost base. "}],[{"start":82.16999999999999,"text":"Much of the problem lies with the group’s core VW brand. "},{"start":85.78699999999999,"text":"This struggles to make much of a margin even in the good times. "},{"start":89.09199999999998,"text":"In the third quarter, it fell to 1.8 per cent of sales. "},{"start":92.75899999999999,"text":"That’s well below the group’s full-year target of 5.6 per cent. "},{"start":96.77699999999999,"text":"Rival Renault is looking at full-year ebit margins of near 8 per cent, according to S&P Capital IQ. "}],[{"start":null,"text":"

"}],[{"start":103.94999999999999,"text":"Volkswagen wants to raise the VW brand margin to 6.5 per cent by 2026. "},{"start":109.80399999999999,"text":"It last year outlined €10bn of performance improvements. "},{"start":113.58399999999999,"text":"The recently reported plant closures and employment reductions might add another €4bn, thinks Daniel Schwarz at Stifel. "},{"start":120.40199999999999,"text":"Combined, such measures account for roughly 15 per cent of VW brand sales — a lot more than it needs to meet its margin target. "}],[{"start":128.2,"text":"Investors may hope that this overshoot speaks to VW’s huge potential to cut costs and cushion the worst of the slowdown in vehicle sales. "},{"start":135.754,"text":"The fear, however, is that it instead reflects a deteriorating environment in which Chinese carmakers continue to gain share domestically and abroad, electric vehicle sales prove dilutive to margins and pricing on internal combustion engines declines. "}],[{"start":149.79999999999998,"text":"That, coupled with the fact that mooted cuts and closures will face fierce opposition, explains why VW’s stock trades at 3.3 times next year’s earnings. "},{"start":158.85399999999998,"text":"Investors clearly do not believe that the carmaker is getting its show back on the road. "}],[{"start":163.23,"text":""}]],"url":"https://creatives.ftmailbox.cn/album/178208-1730340693.mp3"}