Volkswagen Claims that Supply Constraints will Persist despite Stagnant Earnings

Volkswagen said supply bottlenecks were the new norm as its third-quarter earnings stagnated below pre-pandemic levels, under the burden of its Porsche listing and the write-off of a self-driving startup, as well as issues securing parts.

FREMONT, CA: As its third-quarter earnings stagnated below pre-pandemic levels due to its Porsche IPO, the write-off of a self-driving company, as well as problems obtaining parts, Volkswagen claimed that supply bottlenecks were the new standard.

The automaker maintained its profitability goal of meeting the top end of a seven cent-8.5 per cent margin but cut its forecasts for deliveries this year to be on line with 2021 from a previously-forecast five to ten per cent jump.

Considering obstacles to technological transfers between East and West, chief executive Oliver Blume stated that challenges to our supply chain will become the rule, not the exception. According to Chief Financial Officer Arno Antlitz, the automaker has 150,000 unfinished automobiles due to a shortfall of semiconductors and other essential components and is stocking up on supplies to guard against potential shortages during the winter.

He added that order books were getting full, and certain models had been out of stock for 18 months. 4.3 billion euros in third-quarter earnings were declared by Volkswagen, after 1.6 billion in one-time effects from the suspension of Russian operations and the Porsche AG (P911: ETR) listing. A 19.4 per cent margin in the sports and luxury brands, better equipped to pass on growing costs by raising prices than volume brands whose customers are pinched by inflation, helped the group's earnings increase by six per cent overall.

Early trading saw a 2.7 per cent decline in Volkswagen's stock, underperforming a 0.8 per cent decline in the German DAX. Despite luxury carmakers like Mercedes-Benz catching up to 2019 earnings this quarter, the results fell short of pre-pandemic profits and outperformed the third quarter of last year when semiconductor shortages hurt sales across the auto industry. Following its listing in September, Porsche has surpassed its old parent, Volkswagen, to become the most valuable automaker in Europe. In addition, Volkswagen's problems included a non-cash impairment charge of 1.9 billion euros due to the write-down of its stake in Argo AI, a self-driving startup it held alongside Ford Motor Company.

In July 2019, Ford and Volkswagen teamed together to jointly own the Pittsburgh-based business developing driverless car technology, which would cease operations. Volkswagen's initial investment was about USD 2.6 billion, which included USD 1 billion in cash and USD 1.6 billion for the value of Volkswagen's European self-driving unit, which was integrated into Argo. Ford sold VW shares of Argo for USD 500 million in addition. Both firms cut back on business expenses, which caused Ford to incur a net loss and a non-cash pre-tax impairment of USD 2.7 billion.