VW expects to sell 10 million units in 2014, compete for global sales lead
Audi, Porsche brands and China drive profits; VW to cut costs in other areas
First half of 2014: VW comes in second place in global unit sales by margin of 30,000 units
The Volkswagen Group sold 5.07 million units in the period of January to June 2014, up 5.6% from a year earlier. In the same period, Toyota Motor Corporation sold 5.1 million units, up 3.8% year-over-year (y/y), whereas General Motor Corporation sold 4.92 million units, up 1.4% y/y. VW outsold GM to take up second place and closed the gap on Toyota's top global sales by just 30,000 units.
2014 full year: VW may achieve global sales lead
On August 5, 2014, Toyota revised downward its unit sales plan for the 2014 calendar year to 10.22 million units, a y/y increase of 2%. The VW Group claims that it will achieve its medium-term sales target of more than 10 million units per year by 2018, which was set in its "Strategy 2018," four years ahead in 2014. However, the detailed outlook is yet to be announced. If the company achieves the same growth rate of the first half in the second half period as well, the unit sales for the 2014 full year will be around 10.27 million units. The top global sales position for the full year may be determined by a very small margin of just several tens of thousands of units.
Sales supported by China and Audi/Porsche brands
The VW Group's sales are supported by its two premium brands, Audi and Porsche, and the Chinese market. Looking at the group's business results in the period from January to June 2014, the combined unit sales of Audi and Porsche accounts for only 16% of the group's total (excluding its non-consolidated Chinese operations) but their combined operating profits account for around 80% of the total of the group's Automotive Division (excluding its non-consolidated Chinese operation). The group's Chinese joint ventures are accounted for using the equity method. The equity method profit of the Chinese joint venture in the first half of 2014 was EUR 2.6 billion, which accounted for a third of the group's profit before tax.
Top concerns: U.S., Brazil, India and VW brand
Meanwhile, the group's top concerns are the U.S., Brazilian and Indian markets, where sales are declining, and the VW passenger car brand. The group aims to reclaim its market share in the U.S., Brazilian and Indian markets by making aggressive investments to promote local production over the coming years, and by introducing models that are suitable for the respective markets. The unit sales by the VW passenger car brand (except in China) are declining and its operating profit margin is just 2.1% in January to June 2014. The group plans to implement a cost-cutting strategy for the passenger car brand.
LMC Automotive sales forecast
LMC Automotive forecasts that the unit sales of the VW light vehicles (excluding medium-duty and heavy-duty commercial vehicles) for 2014 will increase to 9.59 million units, up 3.8% y/y. The unit sales will continue to increase in and after 2016 as well to reach 11.37 million units in 2017.
"Strategy 2018" and VW's performances
|VW Group sales volume (units)||7.20 million||8.27 million||9.28 million||9.73 million||10 million
|VW Group pre-tax profit ratio||7.1%||7.8% (note)||6.9% (note)||6.3%||(H1 7.9%)||8.0% or more|
|Automotive Division CAPEX to sales||5.0%||5.6%||5.9%||6.3%||(H1 4.1%)||6.0%|
|Automotive Division return on investment||13.5%||17.7%||16.6%||14.5%||-||16% or more|
Note 1: The group pre-tax profit ratio is 11.9% for 2011 and 13.2% for 2012 if incomes from the reassessment of the put/call options for Porsche's shareholding are included.
VW’s trends in China (Part 1): Production set to expand significantly through 2017 (Nov. 2013)
VW's trends in China (Part 2): Sales target revised upward to 3.6 million by 2015 (Nov. 2013)
Beijing Auto Show 2014:
VW and Skoda exhibits all-new Golf R, NMC, Skoda Rapid Sport (May 2014)
VW may achieve over 10 million unit sales and become global sales lead
VW's global unit sales surged to 5.07 million units, up 5.6% from a year earlier. Looking at the unit sales by region, the group continuously enjoyed strong sales in China, which is its largest market, and sold 1.81 million units, up 17.4% y/y. In Europe, where the contraction of the market has bottomed out, it sold 1.7 million units, up 6.9% y/y.
However, in the growing Northern American market, the group suffered a decline to 426,000 units, down 3.0% y/y, with a decrease in its market share. In the South American market, the group's unit sales dropped to 384,000 units, a 22.3% fall y/y due to slow economy in Brazil and Argentina, which turned out to even fall below the group's North American unit sales.
By brand, the Audi, Skoda and SEAT brands recorded a y/y growth of over 10% in sales. However, the VW passenger car brand's sales had only a 3.8% growth y/y, and the unit sales in the markets other than China are declining. In addition, the unit sales of commercial vehicles (three brands' unit sales combined) declined by 4.8% y/y to 314,000 units in total due to sluggish sales in South America.
VW's global deliveries by brand and region
|2008||2009||2010||2011||2012||2013||Jan.-Jun. 2013||Jan.-Jun. 2014||YoY Jan.-Jun. 2013-2014|
|VW Commercial brand||502||362||436||529||550||552||227||218||(4.1%)|
|Source: VW Annual Reports & Financial Reports|
|(Note) 1.||"Other brands" are Bentley, Lamborghini, Bugatti and Porsche (from August 2012). MAN's value is counted from November 2011.|
|2.||VW changed the classification of the Saveiro, from commercial vehicle to passenger car. The Saveiro has been sold in South America since 2014. The above table reflects only the data for January to June 2013 and January to June 2014 periods.|
|3.||Numbers in brackets "( )" represent negative value.|
VW's both revenue and profit stagnate due to exchange fluctuation
The VW Group's sales revenue for 2013 increased slightly to EUR 197 billion, up 2.2% y/y. The group's operating profit also rose slightly by 1.5% y/y to EUR 11.7 billion. As the Porsche results have been consolidated in the group's account on a full-year basis since 2013, the group was able to maintain increases in both revenues and profits in the year and recorded the highest results in its history. Excluding the Porsche results, however, both the revenues and profits declined. As the factors behind this decline, the group cited a decrease in unit sales, except the Chinese joint ventures' unit sales, and exchange rate fluctuation. The profit after tax decreased by 58.2% y/y to EUR 9.1 billion. The reason for this significant decrease was that the group's results for 2012 included EUR 12.3 billion gains on the reevaluation of options related to VW's acquisition of Porsche.
In the group's results for the period from January to June 2014, the revenue recorded only a marginal growth of 0.1% y/y to EUR 98.8 billion. While its unit sales increased by 5.6%, the sales revenue did not increase accordingly. This was because the revenues from its Chinese joint ventures are non-consolidated and the revenues did not increase in proportion to the unit sales due to the effects of the exchange rate fluctuations. The operating profit rose by 7.0% to EUR 6.2 billion. The profit after tax increased by 19.3% to EUR 5.7 billion. The reasons for these increases in profits are that the profit-decreasing factors, such as the effects of exchange fluctuations and increased depreciation expenses, were offset by the elimination of the extraordinary reserves posted in the previous year and the reduction of production costs.
VW Group's outlook for 2014
|Outlook for global passenger car market||* World market: expected to slightly expand, however, the situations vary depending on the market * Western European market and German market: can expect a slight recovery * Eastern European market: expected to shrink * North American market: grows at a slower pace * South American market: expected to shrink * Asia/Pacifica: expected to expand|
|Outlook for VW Group's results for 2014||* Unit sales: over 10 million units * Sales Revenue: around plus or minus 3% y/y * Return on sales: 5.5% to 6.5%|
VW Group's consolidated financial results
|(In millions of EUR)|
|2008||2009||2010||2011||2012||2013||Jan.-Jun. 2013||Jan.-Jun. 2014|
|Profit before tax||6,608||1,261||8,994||18,926||25,487||12,428||6,620||7,777|
|Profit after tax||4,688||911||7,226||15,799||21,884||9,145||4,793||5,716|
|Source::VW Annual Report & Financial Report|
|(Note) 1.||The Financial Service Division is included in "Revenue" and "Profit."|
|2.||VW has consolidated Porsche since August 1, 2012 and MAN SE since November 2011.|
|3.||The Profit before tax includes a nonrecurring profit from the re-measurement of put and call option values in the amount of EUR 1.8 billion in 2010, EUR 6.6 billion in 2011, and EUR 12.3 billion in 2012.|
Earning supported by Audi, Porsche and China; declining profit of VW brand
The VW Group's earnings are supported by its two premium brands, Audi and Porsche, and its Chinese operations. Looking at the business results for the period from January to June 2014, the Audi brand's unit sales account for only 14% of the group's total. However, its operating profit accounts for 51% of the operating profit of the group (Automotive Division only). A majority of the group's profit is earned by Audi. In addition, Porsche's unit sales account for only 2% of the group's total. However, its operating profit accounts for 27% of the operating profit of the group. Porsche's profit helps increase the group's revenues and profits.
The group's Chinese joint ventures are accounted for using the equity method. The equity method profit of the Chinese joint venture in the first half of 2014 was EUR 2.6 billion, which accounted for a third of the group's profit before tax.
On the other hand, in the financial results for January to June 2014, the VW passenger brand's unit sales account for 44% of the group's total and its revenue accounts for 57% of the revenues of the group. However, its operating profit accounts for only 19% and posted a y/y decline. The VW passenger brand's operating margin is 2.1%, which is lower not only than those of the two premium brands (10% of Audi and 17.1% of Porsche) but also than 7.1% of the Skoda brand.
The factors behind this are said to be high labor costs in Germany and higher-than-expected costs incurred for the production of models using the new MQB platform. It is reported that the VW passenger car brand aims to cut production costs of EUR 5.0 billion by 2017.
VW Automotive Division's results by brand
|(Sales volume-1,000 units; Sales revenue: in millions of EUR)|
|Return on sales||2008||3.7%||8.1%||7.0%||(1.5%)||0.9%||-||3.9%||10.8%||-||-||-||5.3%|
|Strategy 2018 target||6%-||8-10%||6-8%||5%-||10%-||15%-||-||-||-||-||-||-|
|Source::VW Annual Report & Financial Report|
|(Note) 1.||The number of vehicles sold is on a wholesale basis. VW represents VW passenger cars. VW CV represents VW commercial vehicles. China represents performances in China. "Others" represents adjustments made on group member transactions.|
|2.||Man's value has been included since November, 2011 and Porsche since August 2012.|
|3.||The VW Group has a Financial Service Division in addition to the Automotive Division shown above. Porsche, MAN, Scania partly include their own Financial Service' revenue and operating profit.|
|4.||The total equity benefit for the two Chinese joint ventures was as below (in millions of EUR).|
|2008||2009||2010||2011||2012||2013||Jan.-Jun. 2013||Jan.-Jun. 2014|
Increasing production capacity in China; sales recovery in Western Europe
China: VW announces construction of new plants in Qingdao and Tianjin, Audi faces anti-monopoly probes by authority
|Second home market||The Chinese market is the largest market and virtually the largest income source to the VW Group. Therefore, the company calls China "The second home market." Looking at the business results in January to June 2014, unit sales in China increased by 17.4% to 1.81 million units and the group's operating profits that are obtained from the local joint ventures reaches EUR 2.6 billion.|
|To invest aggressively, expecting 5% market expansion||VW expects the passenger car market in China to expand at an average annual pace of 5% in the years to come as well. It intends to invest EUR 18.2 billion in total at its local joint venture's expense to increase its annual production capacity there to around 3.2 million units (on 250 working day basis) as of 2014. Specifically, it will strengthen the production capacities of the Chengdu plant and Foshan plant, start operations of the Changsha plant in 2015. VW aims to ramp up the local production capacity to 4.0 million units (on 250 working day basis) by 2018, according to the company's plans (announced as of November 2013).|
|New plants in Qingdao and Tianjin||The company also announced in July 2014 that it will construct plants in Qingdao and Tianjin by investing EUR 2.0 billion and start operations of the plants sometime between 2017 and 2018. Although other details are yet to be announced, it is expected that with the combined capacities of the two new plants, the company will have a production capacity of nearly 5 million units.|
|Risk: anti-monopoly investigation by authority||Audi, which is under VW's umbrella, is facing authority's investigation over alleged violation of anti-monopoly regulations for unfairly inflating the prices of spare parts. Audi announced on August 1, 2014 that it will reduce the prices of its spare parts. It is reported that the company may be fined CNY 1.8 billion. It is also reported that a similar investigation may be conducted concerning vehicle prices. The result of the investigation may affect significantly the revenues from the company's Chinese operations.|
Western Europe: VW expects recovery of passenger car sales, and to invest EUR 38 billion in German market over next five years
|Passenger car sales in Western Europe||The VW Group's passenger car sales in the Western European market in 2013 declined by 0.2% y/y to 2.73 million units. In January to June 2014, the passenger car sales rose by 7.1% y/y to 1.52 million units, returning to growth. The market share increased by 0.4 percentage point to 24.8% y/y in 2013 and remained flat y/y at 24.7% in January to June 2014.|
|Investment plan||The VW Group announced in November 2013 that it would invest EUR 84.2 billion in the Automotive Division over the next five years from 2014 through 2018 (see Note). Of the investment amount, EUR 63.4 billion is allocated to renovate fixed assets, plants, facilities and equipment. Sixty percent of the total amount will be invested in Germany.The average annual investment amount is EUR 12.68 billion. Compared with the group's 2013 to 2015 plan announced in 2012, the amount of investment decreased by EUR 400 million on average. The postponement of some investment plans and production optimization plans is cited as the reason for the decrease. In addition, the group plans to invest EUR 19.5 billion in research and development, and EUR 1.3 billion in financial assets, etc.|
(Note) The group's Chinese joint ventures also announced in November 2013 that they will invest EUR 18.2 billion in total out of their own funds over the same period. However, this is not included in the above investment amount.
Central-Eastern Europe and Russia: sales decline due to intensifying political tension in Russia
|Central-Eastern Europe and Russia||The VW Group's passenger car sales in Central-Eastern Europe and Russia in 2013 declined by 0.6% y/y to 600,000 units. In January to June 2014, the passenger car sales went up by 6.3% y/y to 310,000 units, returning to growth. The group enjoyed strong sales in the Czech Republic and Poland. By contrast, the sales in Russia have continued to follow downward trend and declined to 290,000 units in 2013, down 4.7% y/y. In 2014, this decline was accelerated by intensifying political tension in the region and the sales for the January to June period reached 130,000 units, down 8.1% y/y. The decline in the sales is also expected in the second half of 2014.|
Market with concerns: U.S., Brazil, India and ASEAN
U.S.: as sales decline with VW brand underperforming, the group aims to bounce back to growth with local production of new SUV and Audi plants in Mexico
|Underperforming VW brand||VW aims to sell more than 1 million units in the U.S. by 2018. However, the group's unit sales for January to June 2014 posted only 288,000 units, down 5% y/y. Two brands, Audi and Porsche, enjoy brisk sales. However, the sales of the VW brand declined by 13% y/y to 179,000 units. VW's main models, such as the Jetta, Passat, Beetle and Tiguan, are underperforming altogether. The company has set a target to sell 800,000 VW brand vehicles by 2018. To achieve this target, however, it needs to double its unit sales over the next four years.|
|To produce new midsize SUV||VW announced in July 2014 that it will produce new mid-size SUVs at the Chattanooga plant in the U.S. starting from the end of 2016. The new model will be a seven-seater SUV that will be built on the MQB platform based on the CrossBlue concept, which was unveiled at the 2013 Detroit Motor Show. The company aims to expand its lineup of SUVs, which are popular in the U.S. The amount of investment in this project is approximately USD 900 million. The company plans to invest more than USD 7 billion in the U.S. and Mexico from 2014 through 2018.|
|To set up development center||In July 2014, the company established a development center with 200 engineers at the Chattanooga plant to build products that suit the preferences of the U.S. consumers.|
|Audi Mexico plant||Audi is constructing the San Jose Chiapa plant in Mexico. This is its first plant in North America. The company plans to produce the next generation model of the Q5 SUV starting from the middle of 2016. The annual capacity of the plant is 150,000 units. It will deliver vehicles to the U.S. and other countries in the world.|
|Continued decline in sales||VW has been taking up a large share of the Brazilian market as one of the "Big 4." However, the company is suffering a continuous decline in sales in Brazil mainly because the economy is weak in the country and the company lost its share to new models from Hyundai and Toyota. It sold 840,000 units in 2012. The sales declined by 10% y/y to 760,000 units in 2013, and then decreased by 19% y/y to 300,000 units in January to June 2014. For this reason, the company carried out production reductions such as layoffs at the local plant in 2014.|
|Local production of new models||VW aims to sell more than 1 million units in Brazil by 2018. VW will invest EUR 3.6 billion in the local production of new models. It will start the local production of the Golf and Audi A3/Q3 sequentially in and after 2015. The company also increased the production capacity of the Saveiro pickup truck for Latin America by 50% in August 2014.|
|Continued decline in sales||VW is struggling with a continuous decline in its unit sales in India. The unit sales declined by 19% y/y to 93,000 units in 2013 and then decreased by 34% y/y to 33,000 units in January to June 2014.|
|To invest INR 15 billion||VW announced in July 2014 that it will invest INR 15 billion (USD 250 million) over the next five or six years to rebuild its Indian operations. In August, the company announced that it will invest INR 2.4 billion to establish an assembly line of diesel engines at its plant in India. The assembly line will begin operations at the end of 2014. It plans to increase the annual production capacity for vehicles from 130,000 units to 200,000 units in the future. It is reported that the company also plans to launch a low-priced brand model for the Indian market.|
|Strategic market||VW considers the ASEAN market as one of its strategic markets that allows the company to expand sales in the medium and long terms. It plans to advance into the ASEAN market in a phased manner by beginning with the import and sales of vehicles, and then shifting to the local assembly, complete knockdown (CKD)production and finished vehicle production.|
|Malaysia||VW is building the Polo and other models on a CKD basis in Malaysia. The company has set its unit sales target in the country for 2014 to 20,000 units. In January to June 2014, it sold around 6,300 units in the country and acquired an approximately 2% market share.|
|Thailand/Indonesia||On the other hand, VW sold only around 1,000 units in Thailand and around 1,400 units in Indonesia in January to June 2014. The Audi and Porsche premium brands account for 60% of the sold vehicles. It is reported that the company plans to apply for the Eco-Car Phase 2 program to construct a new plant in the country and assemble the Beetle on a scale of annual production of 300,000 units (April 2014).|
Sales Forecast by LMC Automotive: VW's light vehicle sales to expand to 11.4 million units in 2017
|(LMC Automotive, Quarter 2, 2014)|
According to LMC Automotive's forecast in Q2 2014, VW's light vehicle sales (excluding Medium/Heavy commercial vehicles) in 2014 will expand to 9.6 million units up 3.8% from the previous year, and to 11.4 million units in 2017, up 23.0% from 2013.
Sales in China, the largest market for the German OEM, will increase to 3.7 million units in 2014, up by 13.6% y/y, and to 4.5 million units in 2017 up by 39.5% from 2013
The global research company mentioned that "In 2014, VW Group should see a continuation of robust global expansion and momentum, primarily driven by Asia. Despite an improving European market, the region's pace of recovery is still something of a drag on a better growth performance as renewals of key Audi and VW models are delayed until 2015. Medium term, a strong model policy and a more solid European recovery will see VW Group annual light vehicle sales push through 11.4 million units by 2017. Using LMC Automotive categorizations, this makes VW the world's largest vehicle maker."
VW's light vehicle sales forecast by country and by make (Top 10 countries)
|(Click here to download major 54 countries forecast table.)|
|Volkswagen Group total||8,128,346||8,889,996||9,240,692||9,589,758||10,168,684||10,789,853||11,366,442|
|Source: LMC Automotive "Global Automotive Sales Forecast (Q2, 2014)"|
|(Note) 1.||Data indicate figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons.|
|2.||All rights reserved. Reproduction of any data will require permission of LMC Automotive.|
|3.||For more detailed information or inquiries of forecast data, please contact LMC Automotive.|
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