VW Group (Part 1): 2017 sales revenue to increase by up to 4%

Launching 60 new models in 2017

2017/06/20

Summary

VW Group global sales and growth ratio
VW Group sales revenue operating profit

  VW Group's global vehicle sales grew by 3.8% year-over-year (y/y) to 10,391,000 units in 2016. While the company's emissions scandal and stagnant economies in Brazil and Russia impacted its vehicle sales, the number of units sold in Western and Central Europe as well as the Asia-Pacific. VW Group delivered a record-breaking number of vehicles and became the world's best-selling automaker for the first time, surpassing Toyota (including Daihatsu and Hino Motors) with sales of 10,175,000 units. The Group's vehicle sales for the period January-March 2017 increased by 1.3% y/y to 2,610,000 units owing to growth in Europe as well as in North and South America.

  VW Group's sales revenue for 2016 also hit a record high at EUR 217,267 million, up 1.9% y/y. The Group's operating profit returned to positive territory at EUR 7,103 million, compared with operating losses of EUR 4,069 million in the prior year after negative special items of EUR 7,520 million including charges for the diesel scandal amounting to EUR 6,400 million. VW Group's sales revenue for the period January-March 2017 increased by 10.3% y/y to EUR 56,197 million, while operating profit grew by 26.9% y/y to EUR 4,367 million. Strong sales of new models such as the new Tiguan with a large profit margin and cost saving measures boosted the company's business results.

  According to VW Group's outlook for 2017, which was revealed in May, the risks related to the diesel issue mentioned below will remain and challenges will arise from exchange rate volatility and intense competition. The Group's sales revenue is expected to increase by up to 4% y/y, and operating profit on sales is projected to be between 6.0% and 7.0% (it was 6.7% in 2016).

  In the U.S., the VW Group reached a settlement with regulators and private plaintiffs in most of the lawsuits in connection with the diesel issue. The automaker is expected to pay up to USD 22.2 billion in the country. (VW recognized negative special items of EUR 22.6 billion related to the diesel scandal in 2015 and 2016, of which EUR 12.1 billion was allocated for litigation risks.) In Europe, the Group has been dealing with its diesel scandal mainly through software updates. Software in nearly four million vehicles has been updated as of March 2017. Challenges which may emerge in the future include suits instituted by the U.S. Department of Justice to clarify the responsibility of VW's management and lawsuits for damages filed by VW's shareholders.

  VW Group's new future program "Together - Strategy 2025" that was unveiled in June 2016 and its new model launch plans including electrified models will be reported in a sequel to this report, "VW Group (Part 2)". The report will also cover VW's activities in its major markets; namely China and the U.S.

Related Reports: The VW Group and Issues with Diesel Emissions
Part 3 : Financial results for 2015 and the status of recalls (Jun. 2016)
Part 2 : Internal investigations and recall status (Dec. 2015)
Part 1 : Defeat devices and scandal's background (Oct. 2015)
Volkswagen Group Diesel Emissions Crisis (Sep. 2015)

VW in China: Strengthening SUV lineup - Launch "budget car" series in 2018 (Sep. 2015)
VW Group: Global sales falling from April 2015 - First-half revenue and profit grow over 10% due to euro depreciation (Sep. 2015)



Passenger car deliveries for Q1 2017 decline by 1.1% to 2.33 million; 6.8% drop recorded in China

  VW Group's passenger car deliveries increased by 3.4% y/y to 9.64 million units in 2016. Deliveries in China, which grew by 12.2% to fall just short of the 4 million mark at 3.98 million units, continued to be a source of growth. North America and Europe excluding Russia saw strong deliveries. South America experienced a 26.0% decline with stagnant sales in Brazil. For the period January-March 2017, the Group's passenger car deliveries decreased by 1.1% y/y to 2.33 million units. Deliveries in Europe and North America increased. South America also saw growth supported by recovery in the Argentine market. Meanwhile, Asia-Pacific experienced a 7.1% decline due to deliveries in China falling 6.8% y/y as a result of a tapered tax cut for small-engine vehicles.

  In 2016, deliveries under all passenger car brands other than the luxurious Bugatti brand increased from the previous year. High-margin Porsche and Audi in particular experienced increased sales. Porsche realized growth of 5.6% and Audi 3.6%. However, during the period January-March 2017, VW's Passenger Cars division saw a 1.3% decline and Audi a 7.3% drop. Porsche continued to enjoy strong sales with a 6.6% growth in its deliveries.

Passenger car
deliveries by region
Passenger car
deliveries by brand

VW Group deliveries

(Units)

2015 2016 2015/2016 Jan.-Mar.
2016
Jan.-Mar.
2017
2016/2017
Passenger cars 9,320,687 9,635,484 3.4% 2,353,381 2,327,336 -1.1%
Commercial vehicles 609,909 661,513 8.5% 154,698 167,717 8.4%
Total 9,930,596 10,296,997 3.7% 2,508,079 2,495,053 -0.5%

VW Group passenger car deliveries by region and brand

(Units)

2015 2016 2015/2016 Jan.-Mar.
2016
Jan.-Mar.
2017
2016/2017
Europe/other markets 4,006,105 4,062,452 1.4% 1,020,866 1,047,618 2.6%
(of which: Western Europe) 3,062,371 3,114,030 1.7% 800,813 818,562 2.2%
North America 922,774 928,033 0.6% 199,251 210,269 5.5%
(of which: USA) 607,096 591,063 -2.6% 124,027 135,436 9.2%
South America 489,636 362,343 -26.0% 95,334 105,693 10.9%
Asia-Pacific 3,902,172 4,282,656 9.8% 1,037,930 963,756 -7.1%
(of which: China) 3,542,467 3,975,071 12.2% 954,346 889,608 -6.8%
Worldwide 9,320,687 9,635,484 3.4% 2,353,381 2,327,336 -1.1%
VW Passenger Cars 5,823,414 5,980,307 2.7% 1,459,517 1,440,924 -1.3%
Audi 1,803,246 1,867,738 3.6% 455,869 422,603 -7.3%
Skoda 1,055,501 1,126,477 6.7% 276,625 283,482 2.5%
SEAT 400,037 408,703 2.2% 102,914 117,272 14.0%
Bentley 10,100 11,023 9.1% 1,554 2,377 53.0%
Lamborghini 3,245 3,457 6.5% 928 987 6.4%
Porsche 225,121 237,778 5.6% 55,974 59,689 6.6%
Bugatti 23 1 -95.7% 0 2 -
Source: VW Group Annual Report, Interim Report
(Note) The figures include the Chinese joint ventures.


Q1 2017 sales revenue grows 10.3%; operating profit climbs 26.9%

Operating profit by brand

  The VW Group's sales revenue for 2016 hit a record high at EUR 217,267 million, up 1.9% y/y. Its operating profit returned to positive territory at EUR 7,103 million from operating losses of EUR 4,069 million in the previous year. The Group recognized negative special items of EUR 7.52 billion including charges of EUR 6.4 billion for its diesel scandal. (Operating profit before special items amounted to a record EUR 14.6 billion.)

  The Group's sales revenue for the period January-March 2017 grew by 10.3% y/y to EUR 56,197 million. This increase was mainly due to growth of Skoda and commercial vehicle divisions including Scania/MAN. Operating profit climbed 10.3% y/y to EUR 4,367 million. The VW brand's operating profit increased significantly from EUR 73 million for the same period in the prior year to approximately EUR 900 million with strong sales of the new Tiguan. Product cost optimization in various areas also boosted operating profit.

  According to VW Group's outlook that was disclosed in May 2017, the diesel scandal, exchange rate volatility, and intense competition will continue to affect the company's results through 2017. Nevertheless, the Group's sales revenue is expected to grow by up to 4% y/y and operating profit on sales to be between 6.0% and 7.0%. VW Group plans to launch a total of 60 new models in 2017. In addition, the automaker will release more than 10 new electrified vehicles during 2017 and 2018.

VW Group consolidated financial results

(in millions of EUR)

2012 2013 2014 2015 2016 Jan.-Mar.
2016
Jan.-Mar.
2017
Sales revenue 192,676 197,007 202,458 213,292 217,267 50,964 56,197
Operating profit 11,498 11,671 12,697 (4,069) 7,103 3,440 4,367
Special items - - - (16,893) (7,520) 309 -
Earnings before tax 25,487 12,428 14,794 (1,301) 7,292 3,203 4,623
Earnings after tax 21,881 9,145 11,068 (1,361) 5,379 2,365 3,403
Source: VW Group Annual Report, Interim Report

VW Group sales revenue and operating profit by brand

Sales revenue (in millions of EUR) Operating profit (in millions of EUR)
2015 2016 Jan.-Mar.
2016
Jan.-Mar.
2017
2015 2016 Jan.-Mar.
2016
Jan.-Mar.
2017
VW Passenger Cars 106,240 105,651 25,068 19,040 2,102 1,869 73 869
Audi 58,420 59,317 14,511 14,378 5,134 4,846 1,302 1,244
Skoda 12,486 13,705 3,379 4,334 915 1,197 315 415
SEAT 8,572 8,894 2,070 2,487 (10) 153 54 56
Bentley 1,936 2,031 376 361 110 112 (54) (30)
Porsche 21,533 22,318 4,978 5,035 3,404 3,877 855 932
VW Commercial Vehicles 10,341 11,120 2,716 2,875 382 455 142 205
Scania 10,479 11,303 2,551 3,084 1,027 1,072 244 324
MAN 13,733 13,598 3,123 3,355 279 424 113 119
Other (56,349) (58,225) (14,421) (6,628) (2,440) (1,486) (405) (319)
Financial Services 25,901 27,554 6,612 7,876 1,921 2,105 492 551
Special items (16,893) (7,520) 309 -
VW Group 213,292 217,267 50,964 56,197 (4,069) 7,103 3,440 4,367
Source: VW Group Annual Report, Interim Report

Proportionate operating profit at Chinese joint ventures

(in millions of EUR)

2011 2012 2013 2014 2015 2016 Jan.-Mar.
2016
Jan.-Mar.
2017
Proportionate operating profit 2,616 3,678 4,296 5,182 5,214 4,956 1,174 1,112
Source: VW Group Annual Report, Interim Report


Scandal over diesel emissions

Development of the diesel scandal

Origin The origin of the VW Group's diesel scandal was a strategic decision to launch a large-scale promotion of diesel vehicles in the U.S. in 2005. To this end, a new diesel engine, the EA 189 type engine, was to be developed. The U.S. emissions limits for NOx were stricter than the EURO 5 standard applicable in Europe at that time and made achieving other performance benchmarks difficult.
Irregularities A group in the powertrain development division at VW decided to modify the engine management software. When the software recognized the car was being tested, it activated equipment that reduced emissions of NOx and particulate matter (PM). At the same time, the software activated the defeat device during regular driving to deactivate the emissions control equipment and thereby save fuel and improve driving performance. As a result, the vehicles emitted NOx and PM far above legal limits.
Notices of Violation On September 18, 2015, the U.S. Environmental Protection Agency (EPA) issued a "Notice of Violation (NOV)" to the VW Group for its vehicles with 2.0-liter diesel engines (EA 189 and 289 type). Another NOV was issued by the EPA on November 2, 2015 alleging that irregularities had also been discovered in VW vehicles with 3.0-liter diesel engines.
Measures VW started both internal and external investigations immediately. The automaker commissioned an external investigation by the U.S. law firm Jones Day. The law firm clarified the facts with the support from the auditing firm Deloitte. VW admitted to using unlawful software and has been addressing the issue with recalls, repairs or buybacks in the U.S. VW reached settlement agreements with the U.S. regulators and private plaintiffs in most of the civil and criminal suits in the country as of May 2017. VW is expected to pay USD 22.2 billion in the U.S. In Europe, VW has been dealing with the issue mainly through software updates. Software in approximately four million vehicles has been updated.
Challenges for the future Although VW claims that its managing board had no knowledge of the issue, the U.S. Department of Justice indicted six VW executives and employees and will investigate whether any responsibility is borne by the management team. Various legal risks that may emerge in the future include lawsuits for damages filed by VW shareholders and criminal proceedings against VW in Europe and Korea.

Affected diesel engines

(thousand units)

Total: 10,854 thousand units By engine type Four-cylinder 2.0L 6,608
1.6L 3,665
1.2L 468
Six-cylinder 3.0L 113
By destination EU28 8,494
USA/Canada 721
Rest of the world 1,639
Source: VW Group Annual Report 2015/2016

US Diesel-related settlements (status as of 17 May 2017)

Issue 2.0L TDI 3.0L TDI Criminal & civil-related claims VW-Branded Franchise Dealers
Scope ~475,000 vehicles ~78,000 vehicles 2.0L + 3.0L TDI 2.0L, 3.0L and other matters asserted concerning the value of the franchise
With whom? ・ US Federal & State Regulators(DOJ,EPA,CARB,FTC(Note 1))
・ Private Plaintiffs represented through Plaintiffs' Steering Committee
・ US Federal & State Regulators(DOJ,EPA,CARB,FTC(Note 1))
・ Private Plaintiffs represented through Plaintiffs' Steering Committee
DOJ (including on behalf of EPA), Customs & Border Protection 644 VW-Branded Franchise Dealers
Approval date October 2016 May 2017 April 2017 January 2017
Approval status ・ Max funding pool of ~USD 10 billion eligible for:
  *Buyback
  *Emissions modifications (~70k vehicles)
  *Cash payments
・ Pay USD 2.7 billion over 3 years to environmental trust
・ Invest USD 2 billion over 10 years in zero emission infrastructure
・ Resolution with 44 states, the District of Columbia and Puerto Rico (~USD 603 million including 3.0L)
・ VW-Branded dealers were approved to resell 2.0L TDI vehicles with Gen. 3 engines after receiving an approved modification.
・ Pay up to USD 1.2 billion total benefits in settlement program to:
  *Recall & repair (~58,000 vehicles)
  *Buyback, trade-in, lease terminations, etc.(~20,000 vehicles)
  *Cash payments
・ Pay USD 225 million into environmental trust, USD 25 million to CARB to support ZEV in CA
・ Combined fines & penalties USD 4.3 billion:
  *Plea agreement including guilty plea
  *Criminal fine of USD 2.8 billion
  *Independent monitor (Note 2)
  *Civil claims USD 1.45 billion
  *DOJ civil FIRREA penalty USD 50 million
*USD 1.193 billion cash component, as well as additional non-cash benefits
Provision status VW recognized negative special items of EUR 22.6 billion (EUR 16.2 billion in 2015 and EUR 6.4 billion in 2016) related to the diesel scandal in the financial statements covering the years 2015 and 2016.
Source: VW of America Presentation (May 9, 2017), VW Press Release (May 17, 2017)
(Note) 1. DOJ stands for the U.S. Department of Justice, EPA for Environmental Protection Agency, CARB for California Air Resources Board, and FTC for Federal Trade Commission.
2. VW is obliged to accept an independent monitor appointed by the U.S. government to oversee the Group's compliance for a period of three years. (A U.S. federal court approved this plea agreement on April 21, 2017.)

Technical solution in Europe/rest of the world

Technical solution ・ Technical solutions were confirmed by German Federal Motor Transport Authority (KBA) for EU28 and ECE user states including Turkey: KBA ascertained that implementation of the technical solutions would not bring about any unfavorable changes in fuel consumption, engine power and noise emissions.
・ Software update in < 30 minutes for 2.0L and 1.2L TDI; hardware solution "flow rectifier" for 1.6L TDI in < 60 minutes
Update status Software on approximately four million vehicles has been updated as of March 16, 2017. Implementation of technical solutions for all affected vehicles will be completed by the end of 2017.


Production forecast by LMC Automotive: VW Group's production to reach 11.6 million units in 2020

(LMC Automotive, April 2017)

  VW Group's production grew by 3.3% year-over-year (y/y) globally in 2016 to 10.2 million units. While competitive struggles weakened group volumes in the key regions of Europe and North America, progress in China more than offset the declines.

  In the aftermath of the emissions crisis, huge financial and technical challenges still remain. Not only that but changes to the global trading landscape present new uncertainties for the Group. According to LMC Automotive's latest forecast (April 2017), VW Group's global production in 2017 is projected to increase 3.3% y/y. The automaker's output is expected to reach 11.6 million units in 2020, up 13.2% from 2016.

  In Europe, slowing markets (particularly the UK, following the Brexit vote) will hinder progress for the Group in 2017. Production in the region is expected to decrease 1.2% y/y in 2017. However, the Group enjoys good brand breadth and a new-product offensive, underpinned by SUV models, is emerging. The Group's output is projected to grow to 5.6 million units in 2020, an 8.8% increase compared with 2016.

  Chinese output for the Group in 2017 is expected to be up 2.8% y/y. The anticipated slowdown in demand growth in China, following the changes to the small car tax incentive, will take its toll on VW group, although not by as much as earlier anticipations. The Group's production in China is projected to reach 4.4 million units in 2020, up 12.1% from 2016.

  VW Group's production in North America (USA and Mexico) in 2017 is expected to be up 48.5% from 2016. The first full year of production of the Audi Q5, plus the start of production of the new VW Atlas and Tiguan will help the automaker increase output substantially from last year. LMC Automotive expects that the Group's output in the region will rise to 833,091 units in 2020 for growth of 60.8% compared with 2016.

VW Group's light
vehicle production forecast
VW Group's
production forecast and y-o-y growth in Europe

VW Group's light vehicle production to reach 11.6 million units in 2020

(Units)

COUNTRY GLOBAL MAKE 2014 2015 2016 2017 2018 2019 2020
VW Group Volkswagen 6,620,173 6,378,717 6,516,611 6,731,860 6,775,622 6,908,646 7,121,692
Audi 1,815,130 1,830,218 1,905,325 1,972,667 2,147,427 2,228,252 2,288,854
Skoda 1,065,606 1,034,079 1,143,923 1,203,430 1,213,454 1,254,260 1,351,374
Seat 395,258 411,603 417,008 410,301 434,438 447,276 510,048
Porsche 202,905 233,062 233,588 231,388 245,624 271,363 282,204
Bentley 11,002 11,050 11,817 13,201 14,474 14,492 15,909
Lamborghini 2,650 3,703 3,579 3,977 5,954 6,096 5,658
MAN 0 0 0 2,818 4,845 5,108 5,312
VW Group Total 10,112,724 9,902,432 10,231,851 10,569,642 10,841,838 11,135,493 11,581,051
China Volkswagen 2,731,751 2,683,319 3,007,362 3,098,095 2,981,011 3,104,338 3,295,532
Audi 529,214 489,403 556,519 558,591 591,446 647,285 665,467
Skoda 289,953 267,695 323,761 339,400 353,659 363,953 397,775
China sub-total 3,550,918 3,440,417 3,887,642 3,996,086 3,926,116 4,115,576 4,358,774
Germany Volkswagen 1,533,113 1,624,311 1,592,162 1,522,454 1,454,785 1,370,637 1,392,913
Audi 845,190 838,747 852,940 811,316 842,632 821,834 847,124
Porsche 202,905 233,062 233,588 221,541 167,146 180,105 180,948
Seat 0 0 0 0 0 29,155 38,940
Skoda 0 0 0 0 0 0 8,059
Bentley 388 330 55 0 0 0 0
Germany sub-total 2,581,596 2,696,450 2,678,745 2,555,311 2,464,563 2,401,731 2,467,984
Czech Republic Skoda 627,025 652,963 703,388 740,824 726,958 726,683 770,960
Seat 16,541 19,728 53,862 83,860 79,818 77,757 83,074
Czech Republic sub-total 643,566 672,691 757,250 824,684 806,776 804,440 854,034
Spain Seat 329,838 339,434 313,212 285,794 323,272 306,649 355,975
Volkswagen 305,700 298,360 296,803 307,117 345,546 375,231 355,206
Audi 112,815 131,453 135,847 122,017 121,540 125,989 121,715
Spain sub-total 748,353 769,247 745,862 714,928 790,358 807,869 832,896
Mexico Volkswagen 475,111 459,190 414,547 478,973 514,364 503,624 474,747
Audi 0 0 10,190 152,496 207,874 210,845 196,897
Mexico sub-total 475,111 459,190 424,737 631,469 722,238 714,469 671,644
Slovakia Volkswagen 194,221 168,125 155,576 148,754 175,480 205,813 207,677
Audi 59,528 82,419 105,616 94,953 121,298 121,010 114,502
Porsche 0 0 0 9,847 78,478 91,258 101,256
Skoda 41,974 41,280 41,184 34,119 34,986 50,560 46,999
Seat 26,267 24,516 18,720 18,087 21,273 30,385 28,325
Lamborghini 0 0 0 183 2,556 2,869 2,704
Slovakia sub-total 321,990 316,340 321,096 305,943 434,071 501,895 501,463
Brazil Volkswagen 600,388 421,785 312,847 329,610 329,869 304,171 316,693
Audi 0 1,369 7,576 8,131 8,838 9,454 10,345
Brazil sub-total 600,388 423,154 320,423 337,741 338,707 313,625 327,038
Hungary Audi 135,232 160,206 122,975 115,683 219,449 261,533 291,270
Poland Volkswagen 176,197 170,788 186,767 241,407 243,029 241,438 250,076
MAN 0 0 0 2,818 4,845 5,108 5,312
Skoda 0 11 0 0 0 0 0
Poland sub-total 176,197 170,799 186,767 244,225 247,874 246,546 255,388
India Volkswagen 102,735 113,192 135,897 143,317 158,738 160,002 166,769
Skoda 14,267 16,935 13,789 16,678 19,816 21,564 24,514
Audi 8,410 9,260 5,667 7,878 11,739 13,004 14,428
India sub-total 125,412 139,387 155,353 167,873 190,293 194,570 205,711
Russia Volkswagen 111,296 84,923 87,376 85,204 90,666 99,298 96,684
Skoda 82,160 52,549 57,864 66,252 68,526 79,903 88,483
Audi 9,247 1,049 2,638 0 0 0 0
Russia sub-total 202,703 138,521 147,878 151,456 159,192 179,201 185,167
USA Volkswagen 117,628 87,156 93,415 137,802 166,212 175,848 161,447
South Africa Volkswagen 110,653 112,817 105,915 112,033 146,467 148,740 149,080
Portugal Volkswagen 79,638 74,233 53,917 52,438 86,710 116,772 111,943
Seat 22,612 27,925 31,214 20,756 6,882 0 0
Portugal sub-total 102,250 102,158 85,131 73,194 93,592 116,772 111,943
Belgium Volkswagen 0 0 0 0 0 30,791 66,440
Audi 115,382 116,252 105,252 101,602 22,611 17,298 27,106
Belgium sub-total 115,382 116,252 105,252 101,602 22,611 48,089 93,546
Argentina Volkswagen 72,109 75,047 64,844 54,294 56,467 42,680 45,076
UK Bentley 10,614 10,720 11,762 13,201 14,474 14,492 15,909
Algeria Volkswagen 0 0 0 2,558 4,994 5,509 6,250
Seat 0 0 0 1,804 3,193 3,330 3,734
Skoda 0 0 0 1,012 2,283 2,527 2,715
Algeria sub-total 0 0 0 5,374 10,470 11,366 12,699
Nigeria Volkswagen 0 1,061 5,006 7,114 8,269 9,516 10,124
Ukraine Skoda 3,649 2,068 3,937 5,145 6,144 7,314 9,520
Malaysia Volkswagen 9,351 4,217 3,810 5,604 5,986 6,554 6,700
Kenya Volkswagen 0 0 70 4,194 4,873 5,092 5,136
Ecuador Volkswagen 0 0 0 815 1,992 2,402 2,998
Italy Lamborghini 2,650 3,703 3,579 3,794 3,398 3,227 2,954
Kazakhstan Skoda 6,578 578 0 0 1,082 1,756 2,349
Indonesia Volkswagen 282 193 297 77 164 190 201
Audi 112 60 105 0 0 0 0
Indonesia sub-total 394 253 402 77 164 190 201
Source: LMC Automotive "Global Automotive Production Forecast (April 2017)
(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 about forecast data, please contact LMC Automotive.

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Key words

VW, Diesel

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