Volkswagen:Quarterly Results/2024 Q2

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Earnings Call Summary

Analyst and Media Webcast Call | Analyst Webcast Call Transcript

Q2 results

• CFO Arno Antlitz said Q2 results were impacted by non-operating items in total of €900 million. Adjusting for this, underlying margin stood at 7.6%. "The reported margin of roughly 6% is below our ambition and clearly below what we can deliver based on our strong products and also our global footprint," he said.
• Antlitz said the weak performance of Brand Group Core's operating result signals the need for improvement in cost-reduction. "And secondly, the clear need for a step-up in cost reduction and productivity improvement efforts at Brand Volkswagen including our component business specifically in the German plant and operation in the course of the current efficiency program," he said.

Outlook

• Antlitz said they continue to expect an improvement in underlying performance in H2 in order to achieve their outlook.
• Their outlook is build on an order bank of 900,000 cars in Europe and an order intake which is above the prior year level.
• They expect the market to remain highly competitive and broader costs to be a tailwind in H2.
• As a result of the recently announced Porsche supply chain issues, they expect a range to the lower end of the guided KPIs, Antlitz said.
• Antlitz pointed out that Q3 is usually a weak quarter due to plant holidays, hence Q4 is expected to be by far the strongest quarter.
• Antlitz said volume price mix should be stable in H2 (small positive on volume while mix and pricing being challenging but they are in good position there).
• They expect a small positive from valuation effects in H2.
• They expect broad costs to be a small positive in H2. But they expect fixed cost growth rate in H2 to be lower-than H1 (but this was before the Brussels effect).
• They expect first benefits from severance costs to kick in in H2.

Strategies

• Blume said their main area of action is cost cutting.
• Performance programs have started showing first results, Blume said.
• Blume said the cooperation with Xpeng is fully on track. That project advances are faster than initially planned.
• Investments in Rivian is well-sought to reduce investments in CARIAD, Blume said.
• Blume said investments in Powcore are flexible i.e depends on demand for batteries.
• After the planning round of €170 billion (€165 billion taking into account Rivian JV), investments will reduce due to strategic decisions they have taken, Blume noted.
• In response to Tim Rokossa of Deutsche Bank who asked whether the cost cuts like those implemented at Brussels plant are the beginning, Blume said they have already done a lot of capacity adjustments eg reduction in technical capacity by 25% in some plants, that they will continue to plan plant allocations such as factory costs, supply chain costs and labor costs and that all these are part of the performance programs over all brands.
• Blume said that the performance programs are to compensate expected headwinds and one-time effects in the restructuring of the group but over time, they will contribute to positive momentum development (Q&A).
• BEVs are profit dilutive but they will compensate with scale effects (sharing of platforms across brands) and moving to LFP batteries which are cheap. They also expect raw materials to be cheaper. Additionally, they are now in second-generation BEVs which have better tech than the first-generations.
• Antlitz said the huge benefits from Rivian JV will come from 2029 and beyond.

EU CO2 compliance plan for 2025

• Blume said they still have gaps to close with regard to the EU CO2 compliance plan for 2025 but progress is promising.
• They are betting mainly on new model launches in 2025 which Blume says have received positive feedback.
• Blume pointed out that they will find a way to compensate for the penalties in case they miss the target.
• Blume signaled that they will consider pooling but only after working on increasing the share of BEVs. "There clearly again, we want to avoid penalties. And so first of all we have big potential with all our groups and the new models we are bringing to the market. We want to help ourselves and only secondly, we will balance other measures like pooling emissions but always leveraging expenditures on the one hand side and benefits on the other side. And therefore, we work firstly on our own issues. And then at the end we will think about if it's necessary to take other measures," he said.

Audi supply chain issues

• Blume said Audi continued to be held back by supply chain issues in Q2.

Market

• Oliver Blume said the environment is challenging that we are faced with geopolitical and economic crisis.
• Blume noted that competition has intensified significantly that new competitors with high level of innovation and cost advantages are entering the market.
• Blume added that we are in an environment characterized by excess capacity and pricing competition, particularly in Europe and China.
• Blume said they had a global automotive market share of 11% in H1 with growth in Western Europe being stable and growth in North America and South America expanding significantly.
• There are signs of recovery in electric segment across all the markets, Oliver Blume said. Global BEV deliveries were on prior level in Q2 after a slight decline in Q2.
• Volkswagen Group BEV order intake in Western Europe more than doubled in Q2 and H1, Blume said.
• Blume said the order intake in Western Europe is mainly driven by their product moment (new and attractive BEVs).

Tariffs

• Oliver Blume said he's deeply involved on the tariffs topic (min 1:36).
• Blume said he thinks for Europe it would be important not to think in terms of penalties but to focus more on how to motivate to invest in Europe.
• He said he had a meeting with the minister of China trade and minister of technology two weeks ago and they are very open for a discussion. He pointed out that they are aiming for a fair solution between the regions.
• Blume pointed out that he's in contact with individuals from different European countries with the aim of changing their perspective.
• He thinks the best solution is to build a tariff that benefits all companies from different regions.

Model launches in 2024

• Blume said more than half of the product launches in 2024 have already been launched and feedback from customers has been great while reactions from automotive press has been strong.
• Blume said they successfully launched the new Volkswagen ID UNYX developed in China for China and feedback on it has been overwhelming, especially from the target group of young users.
• Deliveries of the Q6 e-tron started a few weeks ago while deliveries of the EV Macan will start in September.

BEVs

• Blume said they expect a BEV share of 9% to 10% at the end of 2024 and they are now at 8%.

Management and analysts expectations

Management guidance

Key Items	Q2 2024	2024	Y/Y
Revenue	In Q2, they expect margin to be inline with their full-year guidance, but the €900 million severance cost	EUR 338.4 billion	5%
Deliveries		9,516,685	3%
Operating return on sales		6.5%-7.0%

• Operating return on sales guidance was lowered from 7-7.5% in June due to restructuring of Brussels plant.

Analysts estimates

Key Items	Q2 2024	Y/Y	Q3 2024	Y/Y	2024	Y/Y
Revenue	EUR 82.9 billion	3.56%	EUR 79.9 billion	2.65%	EUR 326.3 billion	1.23%
Operating return on sales	6.10%		5.98%		6.60%

Analysts earnings revisions

Key Items	Q2 2024 revisions in the last 3 months		FY 2024 revisions in the last 3 months
	Up revisions	Down revisions	Up revisions	Down revisions
Revenue	2	0	7	9
EPS	0	0	0	0

Analysts opinions

Improved performance in Q2

• Buy, €180: Deutsche bank expects Volkswagen's performance in Q2 to have improved sequentially, driven by Porsche and Audi.
• Neutral, €128: Analyst Jose Asumendi of JP Morgan said Volkswagen is clearly on the offensive. He expects revenue and operating return on sales of 82 billion euros and 7% respectively in Q2.

H2 management expectations could be hard to achieve

• Neutral, €140->€143: Goldman Sachs noted that many European automakers are expecting a stronger H2 than H1. Analyst George Galliers doesn't see any reason for a significant improvement in business in the second half and thinks that's a risk for the shares.

Volkswagen is still convinced of a slight increase in sales this year

• Neutral, €136: Bernstein said after the recent management-analyst call that Volkswagen is still convinced of a slight increase in sales for 2024 as a whole. Analyst Stephen Reitman said management made it clear that it could have landed in its previous margin target range for 2024 without the Brussels plant burden.
  

Competitor expectations and results

BMW

• BMW Group automotive EBIT Margin fell to 8.4% from 9.2% last year, missing analysts estimate of 8.7%.
• BMW revenue was € 36.94 billion (-0.7%), lower than €40.08 billion estimate.
• BMW said its revenue in China were impacted by rising competition and weak consumer sentiment. "In China, in particular, revenues were impacted by heightened competition and weaker consumer sentiment."
• Automotive earnings were impacted by higher manufacturing and R&D costs.
• BMW confirmed its guidance for the full year (automotive EBIT margin of 8%-10%) betting on sustained demand for its premium vehicles. It expects to see a slight growth in deliveries in 2024. In China, it expects the economy to begin to stabilize in Q3.
• It pointed out that its outlook for the full year assumes macroeconomic and geopolitical conditions will continue to deteriorate.
• BMW pointed out that there is pricing pressure in the U.S market but that pricing for their vehicles is stable. "And with respect to the U.S., for example, pricing momentum is also good because if you have a look for our days of supply, we're still operating on the dealerships with 31 days whilst the industry level or even European OEMs' level is on 55 days. So that means the price pressure is rather on them than on my side. I think that is really relevant to know. And in Europe, we are also still on a stable side," CFO Walter Mertl said.

Mercedes-Benz

Here is how Mercedes-Benz performed in the quarter and how it sees itself at the end of the year.

• Mercedes lowered its outlook for 2024 cars adjusted return on sales to a range of between 10% and 11% from 10-12% due to ramp-up costs for charging infrastructure and tough market conditions in China..
• It raised its outlook for 2024 vans adjusted return on sales to a range of 14%-15% from 12-14% initially due to favorable pricing and cost reductions during the quarter.
• Mercedes reiterated its 2024 overall group guidance for revenue, EBIT and Group free cash flow.
• The car maker expects a better second half. Sales and the model mix are expected to improve in the second half of the year, supported by further market launches of new models particularly in the Top-End segment," it said in a statement.
• The group now expects new business volume at its mobility business to be slightly below the prior year level. In March, they expected it to be at the prior-year level.
• Mercedes-Benz noted in the earnings call that it witnessed softer-pricing in Q2 and that used car business continued to soften. "The ASP is at €71,000 due to a lighter mix and softer pricing," CFO Harald Wilhelm said. "On the return on sales adjusted in the second quarter of 10.2%. How did we get there? In essence, I mean, the bucket volume structure net pricing driven -- is driven by lower volumes, mix impact outlined by Ola before due to the lighter Top-End share and the negative pricing versus a very high level of pricing in the second quarter 2023. Additionally, the used car business normalized as we anticipated, and we also invested further into the product enhancement to keep them at the cutting edge."
• They, however, noted that pricing for ICEs is still solid. "Adjusted return on sales cars guidance is narrowed to 10% to 11%. What do we expect in the second half of the year? Volumes are expected to increase in the second half with full availability of the products. The mix is expected to improve, thanks to Top-End launches. The pricing we want to hold and defend on current levels. The ICE pricing is solid. The EV pricing is at the same time competitive," CFO Harald Wilhelm pointed out..."Additionally, we see normalization of the used business, but still an overall healthy level.
• Mercedes said its mobility business is facing a challenging environment at the moment. "Our mobility division is feeling a challenging environment at the moment," CEO Ola Kallenius said. "On mobility, H1 was challenging with regards to the margin and the cost of credit risk. In H1, the new acquisitions improved, but this takes -- the margin in the acquisition improved, but this takes time beyond the H2 to materialize due to the demanding market environment and higher for longer interest rate development," CFO Harald Wilhelm pointed out.

Key Items	Q2 2024	Y/Y	Analysts estimate
Group revenue	EU36.74 billion	-3.9%	EU37.22 billion
Group EBIT	EU4.04 billion	-19%	EU3.99 billion
Operating return on sales for cars division	10.2%		10.3%
Operating return on sales for vans division	17.5%		15.4%
Mercedes-Benz Mobility (Financial services) revenue	EU6.35 billion	-2.4% (Q1 2024: +3.3%)	EU6.38 billion
Mercedes-Benz Mobility (Financial services) adjusted EBIT	EU271 million	-39.5% (Q1 2024: -48.2%)
Mercedes-Benz Mobility (Financial services) contract volume	135,747	3.3%
Mercedes-Benz Mobility (Financial services) new financing contracts	303,700	-15%

Renault

• Renault reiterated its 2024 operating margin guidance of more than 7.5%.
• Its revenue fell by 0.7% to 15.3 billion euros in Q2 mainly due to negative exchange rate effects.

• Pricing effect contributed +1.8 points to revenue growth.
• Product mix effect contributed +1.0 point to revenue growth rate.
• Volume effect contributed -4.7 points to revenue growth rate.
• Its operating margin stood at 8.1% (analysts estimate: 7.9%) in H1 2024 (H1 2023: 7.6%) boosted by pricing and exchange rate effects.
• Revenue in its mobility financial services were up by 30.4% to EUR1.3 billion in Q2 (financing contracts grew by 2.1% while used car financing were down by 10.4% in H1) while operating profit rose by 14.5% to EUR593 million in H1.
• In the earnings call, CEO Luca de Meo (who is also the president of ACEA) called for coordinated support from European regulators to ensure the industry meets the 2025 emission targets, "The EV market is currently stuck at 15%, and to meet the 2025 targets, we need to be above 20%. Renault is well-positioned with a high mix of hybrids and new EV products. However, the industry as a whole may struggle to meet these targets without more flexibility or coordinated support from regulators," he said. "Flexibility in regulations, similar to what was done in 2020, could help the industry meet these ambitious targets without incurring significant fines."
• CEO Luca de Meo said there is increased pressure on pricing. "While there is pressure on pricing, we use cost savings to offer competitive products without sacrificing margins. Our high utilization rates and strong order book support this strategy", he said.
• Renault expects continued strong performance in the light commercial vehicle (LCV) segment.