Volkswagen:Quarterly Results/2024 Q3

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Earnings call summary

Sources: Q3 2024 Volkswagen Earnings Call Transcript | Q3 2024 Volkswagen Analysts and Media Webcast

Restructuring at the brand group core

• CFO Arno Antlitz reiterated that costs at the German operations and plants are far from being competitive.
• Antlitz said the biggest cost disadvantage compared to competition comes from the fixed cost, the overhead cost and the production and operational cost at the German plants and that they are mainly focusing on these.
• Antlitz also said that they are also looking into other costs such as material costs.
• Antlitz said in the Q&A that nothing happened in the last few months that made them to increase their stance on cost-cuts. They just want to deliver on the 6.5% target by 2026.
• Antlitz said in the Q&A that the €10 billion is now slightly higher due to negative effects hence they need to do more to achieve it. "We need to achieve the 6.5% in 2026. So we originally started with €10 billion. And so what happened was like some of the €10 billion had like negative -- we saw negative effects. For example, we had some assumptions on pricing and on positive effects on the pricing side. So that didn't materialize due to higher -- much intensified competition, " he said. And so we had to I would say, step up the €10 billion. So the €10 billion are now slightly higher."
• Antlitz said in the Q&A that further restructuring charges in Q4 cannot be ruled out.
• Rolf Woller said in the Q&A that if they don't agree with the unions then the 1984 agreement will come into force (which leads to an increase in wages by 10%).
• Antlitz pointed out (Q&A) that he cannot rule out employee strike in December due to the restructuring efforts.
• Antlitz said the impact of the strike will depend on whether the affected factory is car or component factory.
• Antlitz pointed out that they are seeking a significant benefit from the negotiations with the labor unions. "But only I can say we need to make sure that the compromise we find will be significant. So that Volkswagen can achieve the 6.5% margin and can go -- move into a profitable and successful future and will be able to invest into future projects from for themselves and not dependent on the group. And I'm confident that we reach agreements that -- so that we will achieve this target."

2025 CO2 targets

• Antlitz said in the Q&A that 2025 will be a challenging year with regards to the CO2 targets.
• He pointed out that they want to achieve compliance by themselves while protecting profitability.
• The strong BEV order intake in Q3 gives Antlitz confidence on meeting the targets.
• Antlitz pointed out that there might be a potential credit pooling but it's early to tell.
• Rolf Woller, head of investor relations said that the they don't think the worst case scenario adds up to 4 billion euros, that reflecting on the current situation, it should be much lower. "We have also seen very good reports by -- not only by you, but also by others analyzing the CO2 situation coming up with in part quite drastical headwinds for 2025. And as said during the road show activities as well, we don't think actually that the worst case scenarios we are calculating up to €4 billion headwind that this is the -- reflects the current situation should be much, much lower."
• Antlitz added that they also have a strong order intake of PHEVs which should also help to lower the target.

Pricing

• Antlitz said pricing stabilized in Q3, boosted by last year's price increases but offsetted by higher temporary sales promotions, specifically for BEVs.
• He said (Q&A) that pricing is being boosted by positive momentum from new models. He expects this momentum to continue.
• However, they have to step up the BEVs in the coming months as they go into 2025 and BEVs are margin dilutive. They also carry higher price incentives.
• Antlitz said (Q&A) the only BEV with margin is the upcoming ID.2.

Deliveries

• Antlitz said order intake in Western Europe remains robust due to seasonal effects.
• Antlitz said they had an order intake of 674,000 units in Western Europe in Q3, up 27% y/y and down by around 87,000 units from the previous quarter.
• He noted that order intake accelerated substantially again in September compared to the summer months and the previous year due to attractive new lineup which are becoming more available in the markets.
• At the end of September, they had an order intake of 870,000. Pre-pandemic they had an order book of 800,000.
• Antlitz said BEV order intake in Q3 showed an encouraging trend, more than doubling from last year, boosted by recent new product launches.
• Antlitz said in the Q&A that before the pre-pandemic, the total market in Europe was 16 million cars and and after the pandemic it went to 14 million cars. Since they have 25% market share, that leads to overcapacity of 500,000 cars and they don't expect that to change.
• Antlitz said in the Q&A trends in Europe such as household income and high energy costs indicate that the market in Europe will not grow significantly post-pandemic. He expects 1% to 2% growth next year.
• Rolf Woller also said (Q&A) that third-party data indicates that growth in Europe will not change much from the 14 million.

Q3 2023 and 9M 2024 revenue and operating results

• Antlitz reiterated that Q3 was expected to be the weakest quarter in 2024 due to seasonal factors, weak volumes, restructuring costs (€1.2 billion) at Audi and supply headwinds at Porsche.
• He said that the supply shortages of Six and eight cylinder engines at Audi normalized in Q3.

• Antlitz said pricing stabilized in Q3, boosted by last year's price increases but offsetted by higher temporary sales promotions, specifically for BEVs.
• Product costs were a minor headwind in the 9M 2024.
• Overhead cost ratio stood at 17.4% in the 9M of 2024 (9M 2023:15.7%) driven by carryover effect of wage increase from 2023 and the lower sales revenue.
• Revenue at the Brand Group Core was stable y/y, supported by increased vehicle list prices and positive mix but held back by higher fixed costs and price incentives for BEVs.
• Unit sales at Traton normalized in Q3.
• Volkswagen Group Mobility credit loss ratio remained stable.
• Financial Services division operating result fell to €2.2 billion in the 9M of 2024 due to continued normalization of used car prices, especially outside Europe and higher risk costs.
• The proportionate operating result from China JVs fell 37% y/y to €1.2 billion in the 9M of 2024 due to lower sales volume as a result of intense competition, margin dilutive effects from higher BEV sales and costs associated with the realignment of business there. Overall, results are in line with their expectations and they expect to end the year with a proportionate operating result of €1.6 billion

Products

• Arno Antlitz said the new ID.7 GTX (launched in Q3) is now the most powerful electric car from the Volkswagen brand, recording 794 kilometers of range in a single charge.
• The new ID unique e-SUV has been launched in China.
• Starting from early October, Skoda's first all-electric SUV starting from €33,000 is on sale.
• Antlitz said (Q&A) Audi has a very strong product momentum such as the Q6 etron, A5, A7, Q5 and Q7. He expects this momentum to benefit Audi over the coming 24 months.

Joint venture with Rivian

• Antlitz said they received all the necessary regulatory approvals in the past month.
• Antlitz pointed out that they were able to prove full technical feasibility of the Rivian architecture and software in a drivable demonstrator vehicle.
• Antlitz noted that the JV fits well into their platform strategy and road map.
• Antlitz pointed out that they have all the ingredients to succeed in the U.S truck segment.
• Scout EVs likely to use the Rivian architecture though it's not 100% decided, Antlitz said in the Q&A.

Dividend

• Antlitz said their payout ratio is set at 30% and that is still valid. However, the current situation is impacting the profitability, hence the dividend in 2024 could be below €9.6 per preferred share of 2024.

CARIAD

• Antlitz reiterated in the Q&A that CARIAD will still play an important role in the group since it's developing the 1.2 software for the PPE platform.
• Antlitz expects CARIAD to improve significantly when it comes to EBITDA and cash flow as more products associated with it are launched. Improvements from next year are expected.
• Expenditure at this brand is also expected to move down.

Management and analysts expectations

• Management expects 2024 revenue to decline 0.7% y/y to 320 billion euros (previous forecast: growth of 5% y/y, the lower-point being more likely).
• It expects operating return on sales to come in at around 5.6% (previous forecast: lower range of 6.5% to 7.0%).

Recent analysts estimates at Marketscreener

Key Items	Q3 2024	Y/Y	Q4 2024	Y/Y	2024	Y/Y
Revenue	EUR 79.53 billion	0.87%	EUR 85.04 billion	-2.42%	EUR 320.529 billion	-0.55%
Operating return on sales	3.7%		5.6%		5.8%
Earnings attributable to Volkswagen AG shareholders	EUR 1.4 billion	-63.31%	EUR 2.1 billion	-54.57%	EUR 12.33 billion	-22.99%
Diluted EPS	EUR 2.85		EUR 4.23		EUR 24.61

Analysts earnings revisions

Key Items	Q3 2024 revisions in the last 3 months		FY 2024 revisions in the last 3 months
	Up revisions	Down revisions	Up revisions	Down revisions
Revenue	0	3	5	14
EPS	0	0	0	1

Major subsidiary expectations

Porsche

Insights from Porche's earnings call

See: Porsche Q3 2024 Earnings Call Transcript

Headwinds during the quarter

• CFO Lutz Meschke said business in Q3 was impacted by product change-overs, many supply chain disruptions and prudent management of supply and demand in China.
• Lutz pointed out that supply chain disruptions as a resulting of flooding of an important European aluminum plant have been compensated but other supply chain risks still exist and have to be managed. "It's still very challenging. The flooding of the Novelis plant could be handled quite well. There is no significant damage in our production capacity happened in the last week. But on the other hand, we have seen additional challenges, other suppliers. And therefore, in general, I can say it's still a very challenged situation to get the entire supply chain stabilized. But when it comes to the battery cell, we are quite confident that we could, yes, solve all the residual items in order to make the steep ramp-up curve, " he said with regard to other supply chain issues.
• Lutz said all the three headwinds are behind them and we should expect improved performance from here.

Pricing

• Lutz said pricing was again positive benefiting from price increases last year and higher degree of individualization.
• Lutz pointed out that order intake remains encouraging, already stretching into 2025.
• Lutz said the demand for the new 911 is as expected, even exceeding expectations.
• Lutz pointed out that the demand for Macan remains robust.
• Lutz said that in the case of Macan, the see an increase in revenue per vehicle from individualization.
• Lutz pointed out that the average retail sales price at the end of Q3 2024 was EUR 115,000 while the average wholesale price was EUR 117,000, reflecting their value over volume strategy and long-term trend.

China situation

• Lutz said the situation in China remains challenging. "The situation is still very challenging. First of all, when it comes to the BEV segment, and we cannot expect a significant recovery in the upcoming years when it comes to the BEV segment, the luxury, the premium and luxury web segment in China for the European OEMs," he said.
• Lutz said China sales in 2025 is expected to be at the same level as in 2024.

Profitability

• Lutz said they are pursuing a cost-reduction strategy that will enable them to remain highly profitable even with car sales of just 250,000 cars per year.

Products

• Lutz said the start of deliveries for the 911 GTS and the new electric Macan should boost deliveries in Q4, hence they expect a better quarter compared to Q3. " The GTS will start now in the fourth quarter, and then we will have a very steep ramp-up curve in the first half of '25. And in the second half of the year, also the 911 Turbo will start with the better results from at from the technology point of view. It's the battery cell is very stable," he said. "And as already mentioned, in 2025, this situation will be much better when it comes to the 911 mix and the entire product availability also for the E-Macan in the different world regions," he added.
• Lutz pointed out that demand for BEVs in U.S. and Europe remains challenging as well. "And in the rest of the world in the states and in Europe, we see, yes, a slowdown in the BEV transition. And the customer demand is, yes, not satisfying overall. And a lot of customers, first of all, in the premium and luxury segment are looking in the direction of combustion engine cars," he said.
• Analyst Patrick Hummel of UBS pointed out that they are hearing issues with the E-Macan in United States and China. "The E-Macan, what we hear in North America, Europe -- sorry, North America and China doesn't look that great either," he said.
• Analyst Horst Schneider also said he gets the feeling that the order intake for the E-Macan may not be that great. " I get the feeling it's maybe not as great as you wanted, but you shared until April some numbers on the order intake," he asked.
• Björn Scheib couldn't share the order intake for the E-Macan because of competitive reasons but said that it remains robust except in China.
• Lutz said the situation remains challenging for Taycan in 2024 due to the market situation in China. He expects a recovery in the demand for Taycan in 2025.

2025 CO2 emissions

• Lutz pointed out that they are prepared to meet their 2025 CO2 targets and if they don't meet them then they will have to pay Volkswagen. "But at the end, we are part of the VW Group and if you are not able to fulfill the targets, then of course, we have to pay the bill also as Porsche," he said.

Management guidance

• Porsche's management expects sales revenue in the range of €39 to €40 billion (lowered from a range of €40 to 42 billion).
• It expects operating return on sales in the range of 14% and 15% (lowered from a range of between 15% and 17%).

Analysts estimates at Marketscreener

Key Items	Q3 2024	Y/Y	Q4 2024	Y/Y	2024	Y/Y
Revenue	EUR 9.24 billion	-4.8%	EUR 10.526	1.23%	EUR 39.2 billion	-3.4%
Operating return on sales	11.3%		14.4%		14.4%

N/B: Porsche's revenue reported at the group level is less than that reported at the subsidiary level by around EUR 800-900 million (average of 851 million in the last four quarters). Similarly, the EBIT reported at the Group level has been less than that reported by Porsche in the past four quarters by an average of 76 million euros. That means analysts are projecting Porsche's revenue at the Group level to be around EUR 8.38 billion (growth of -5.7% y/y) in Q3 2024 while operating return on sales (EBIT: EUR 966 million) will be around 11.5%.

Traton

• Traton said its adjusted operating return on sales in Q3 2024 was 9.6% vs 8.4% same period last year.
• It also said that its adjusted operating profit was €1.14 billion vs just over €1 billion expected by analysts.
• Traton pointed out that its U.S International Brands (formerly Navistar) is recovering faster than expected from supply chain problems while Scania and Traton benefitted from better price and product mix.
• It still expects its revenue in 2024 to grow by -5% to 10%. Also, it's still guiding adjusted operating return on sales in the range of 8% to 9%.

N/B: In the last four quarters, adjusted operating return on sales reported at the subsidiary level has been higher than operating return on sales (before special items) reported at the group level by a range of 0.23% to 0.56%. That means Q3 operating return on sales (before special items) reported at the group level could be in the range of 9% and 9.4%.

Competitor expectations and results

Tesla

Tesla’s Q3 2024 revenue slightly missed estimate while EPS topped estimates signaling a rebound in the EV market

• Tesla Q3 2024 revenue came in at $25.18 billion (+8% y/y) versus analysts estimate of $25.37 billion, adjusted EPS was $0.72 versus $0.58 estimate while automotive gross margin (excluding regulatory credits) rose to 17.1%, beating analysts’ estimates and up from 14.6% a year ago.
• The company said revenue was boosted by growth in vehicle deliveries (+6% y/y) and higher regulatory credit revenue among others, but was impacted by a decline in average selling price of its vehicles.
• In the earnings call, Elon Musk said cheaper EVs that they will launch next year gives him confidence that they will achieve a 20% to 30% growth in deliveries in 2025.
• Seth Goldstein, Morningstar analyst, said Tesla benefited from higher volumes, reduced unit costs and stabilizing prices.

General Motors

General Motors Q3 2024 revenue and EPS topped analysts estimates, boosted by continued strength in pricing

• General Motors’ Q3 2024 revenue rose 10.5% y/y to $48.76 billion, exceeding analysts’ estimate of $44.59 billion while EPS came in at $2.96 versus $2.43 estimate.
• GM’s results were boosted by continued strength in pricing.

  “Pricing for the quarter was up $900 million year over year and better than what we assumed in our guidance. About half of this pricing benefit was from really strong performance from our midsized SUVs, especially the Chevrolet Traverse. The rest was primarily from pricing adjustments that we made on our full-size SUVs and the Corvette in the fourth quarter of last year, which have now been fully lapped,” CEO Paul Jacopson said in the earnings call.

• Jacopson said in the media briefing that the consumer remains strong.

  “The consumer has held up remarkably well for us,” he said. “Nothing we see has changed from where we’ve been for the last several quarters.”

• GM raised its full-year 2024 adjusted EBIT to a range of $14 billion and $15 billion (previously: $13- $15 billion).

Analysts opinions

Automotive prices could be declining

• Outperform, €103-> €102: Analyst Tom Narayan of RBC said the mood for the automotive industry is bad. He pointed out that four automakers have issued profit warnings recently. He says that one has to ask whether prices are declining following the Corona pandemic.

Volkswagen is likely to report a weak quarter

• Buy (preference shares), €150->€115: Deutsche Bank expects most of Volkswagen's key figures to be negative.
• Buy (preference shares), €140: Analyst Philippe Houchois of Jefferies said several profit warnings from automakers have left little room for major surprises in the third quarter.

Further deterioration of the industry is expected

• Sell (preference shares), €84: Analyst Patrick Hummel of UBS expects the industry to deteriorate further. He sees more upcoming profit warnings.

It's interesting that Volkswagen is blaming the mass market

• Overweight, €110: Analyst Henning Cosman of Barclays is curious why Volkswagen blamed the mass market and the financial service division while the likes of BMW and Mercedes-Benz are blaming China and luxury segment.

Further restructuring costs are expected

• Buy, €120-> €115: Analyst Romain Gourvil of Berenberg expects more burdens from restructuring charges.