Volkswagen reports drop in quarterly profit

Volkswagen on Thursday reported a drop in first-quarter earnings, saying weaker sales in China confirm the need for the German automaker to close the gap on its competitors in the country’s fast-growing electric vehicle market.

The company’s results and revenue growth in Europe and North America allowed Volkswagen to maintain its full-year forecasts for a sales recovery of 7.5% to 8.5% and higher deliveries.

However, in China, sales fell 14.5%, and the chief financial officer Arno Antlitz (Arno Antlitz) acknowledged that the company has a lot of work to do to catch up with competitors in the electric vehicle market.

“Competition will intensify as the number of chips increases and their availability improves,” Antlitz said at a media conference following the announcement of the results.

Asked how the company will respond to the wave of declining EV prices, Antlitz said: “We are focusing on the quality of the business, not the sales volume, especially in EVs…we don’t want to lose our margin target.”

Volkswagen aims to achieve the same level of margins in internal combustion engine vehicles as in electric vehicles, although EVs are still much more costly to manufacture, also due to high raw material prices.

BMW, which also released results on Thursday, said rising EV sales are hurting costs this quarter due to higher material prices and R&D spending.

Volkswagen’s revenue for the quarter was 76 billion euros ($84.22 billion). Operating profit fell from 8 billion euros last year to 5.7 billion euros (down 31%), but beat the expectations of five analysts polled by Refinitiv SmartEstimate, who had forecast a profit of 5.48 billion euros.

Excluding the valuation effect of hedging headings, operating income increased by 35% to €7.1 billion, representing a margin of 9.3%.

Total deliveries in the first quarter were up 7.5% year-on-year, and shipments in March were up 23.9% year-on-year.