VW brand says profitability drive faces climate cost risks

Volkswagen Group’s core VW brand said costs for its electric-car program, along with EU requirements on curbing emissions and other climate-related demands would cause profitability to stall between 2018 and 2020.

Profits would be hit even as earnings, sales and deliveries at the automaker were forecast to hit new records this year, VW brand executives told a media briefing at its global headquarters.

The European Union has proposed tougher vehicle emissions targets for 2025 and 2030 to reduce carbon dioxide (CO2) and other greenhouse gases.

Carmakers, which are racing to develop electric vehicles (EVs), can be fined for violating the limits

The VW brand shoulders the bulk of VW Group’s development spending, as well as costs related to its diesel emissions-cheating scandal.

VW finance chief Arno Antlitz said the company faced “heavy financial demands” due to bottlenecks expected from introducing so-called WLTP lab tests related to car emissions and fuel consumption, regulations to curb CO2 emissions and EV development costs.

“The CO2 fleet targets will certainly pose the greatest challenge for us as a company until the year 2020,” VW brand CEO Herbert Diess said.

Automakers are working on new EV models to meet emissions goals. VW aims to sell more than 1 million cars powered solely by batteries by 2025, after selling just 43,000 electric models in 2017.

VW brand will launch its first new-generation EV, the I.D. hatchback, in 2020 followed at short intervals by other I.D. models including the I.D. Crozz SUV and I.D. Buzz minivan.

VW Group plans to launch 80 new full-electric vehicles across the 12-brand group which includes Audi, Porsche, Skoda and Seat by 2025 and offer an electric version of each of its 300 group models by 2030.

Starting next year, the group will roll out a new EV “virtually every month” to eventually offer the largest fleet of electric vehicles in the world, VW Group CEO Matthias Mueller said at the company’s annual press conference.

Last year, VW brand, the group’s largest division by sales and revenue, more than doubled its return on sales to 4.1 percent on the back of cuts in research and development spending, lower production costs and rising sales of SUVs, which deliver higher margins.

The brand said its operating margin might come in between 4 percent and 5 percent this year, a range it said it would also maintain in 2020, the year before a new lower limit of 95 grams of CO2 per km takes effect.

“This year and over the next few years, the brand will face severe challenges despite its improved competitiveness,” VW said in a statement.

But Diess said VW expected to benefit from further cost savings, expansion of modular production and growing demand for its new vehicle models in North and South America.