Volkswagen flags pressure from China rivals and tariffs as profits fall

Volkswagen AG’s first-quarter operating margin declined as tariffs and increasing competition in key markets weighed with the carmaker seeking to reap more savings.Group operating returns fell to 3.3% in the first three months of the year, down from 3.7%, VW said Thursday. The manufacturer is targeting more efficiencies amid tough competition from Chinese carmakers such as BYD Co. both in China and increasingly in Europe, Chief Financial Officer Arno Antlitz said in a statement.

“Competitors from China are coming to Europe and building new, efficient plants in Eastern and Southern Europe,” Antlitz said in an interview provided by the company. “We will not be able to withstand competitive pressure with underutilized plants.”
VW shares fell as much as 3.3% in early Frankfurt trading. Competitor Stellantis NV, which also reported first-quarter earnings Thursday, slumped.
Chinese carmaker sales are surging in Europe, with the likes of BYD and SAIC’s MG leading the charge. The new competitors are now intensifying efforts to establish manufacturing sites in Europe, after the European Union put in place import tariffs on China-made EVs and is working on new restrictions to encourage local production. The new entrants and a sluggish European market has left particularly VW and Stellantis NV with overcapacity in the region.VW plans to further downsize its global operations and output as it confronts what Chief Executive Officer Oliver Blume has termed a “new normal” of geopolitical volatility, trade barriers and competition from Chinese rivals. Sales are declining in the US and China, and the carmaker sees little chance of a quick bounce-back. On Thursday, VW also reiterated plans to reduce complexity across vehicle platforms and model variants to boost savings.

The company made progress on efficiencies during the first quarter, citing a €1 billion ($1.2 billion) reduction in overhead costs and net cash flow of €2 billion.

Porsche and Audi — Volkswagen’s two traditional profit drivers — are struggling after their strategies on electric models didn’t work out as expected. After years of development snags and delays of key models, both nameplates are trying to regain momentum to keep pace with the likes of Xiaomi Corp., Nio Inc. and BMW AG on next-generation software. Tariffs in the US are further undermining profits.

At Audi, operating profit and margin improved after more efforts to bring down costs, Provisions on keeping pace with regulation on lowering fleet CO2 also fell and the unit incurred lower restructuring charges, Volkswagen said. The brand will provide more details on its results on May 5.

Thursday’s result includes an approximately €500 million charge for ending production of VW’s lone US-made EV, the ID.4 sport utility vehicle.