The Volkswagen Group sees a high need for capital expenditure this year.
The Wolfsburg-based company wants to invest 13.5 to 14.5 percent of sales in development, products and systems, as they announced on Friday in Wolfsburg. This is a high, the DAX group said. The car manufacturer’s shares fell significantly.
The burden is only likely to ease in the following years – the proportion of the revenue generated that goes to research and material investments should gradually fall to 11 percent by 2027. Total investment spending between 2025 and 2029 should be limited to 170 billion euros.
VW had estimated 180 billion euros for the five-year period between 2023 and 2027 and had already warned that a high hurdle would have to be overcome in 2024. The group has not yet provided any specific information for the five years between 2024 and 2028, but experts expect an unchanged budget for this period. VW is spending a lot of money to defy tough competition in the recently difficult Chinese market, especially in the area of electric cars, to build battery cell factories and to further develop electric cars and combustion engines.
However, this reduces the freely available funds in the group. Last year, VW achieved a high net cash inflow of 10.7 billion euros in the automotive sector after investments, thanks, among other things, to a sharp reduction in inventories in the fourth quarter, as CFO Arno Antlitz said in an internal interview that was available to the dpa news agency. That was a one-off effect, but there are now significant investments in future fields, especially in the battery division, according to the manager. “Accordingly, we only expect a net cash flow of 4.5 to 6.5 billion euros for 2024 – an absolute lower limit in our business,” Antlitz added.
This prospect spooked investors. They sent the shares plummeting at the end of the DAX with a loss of almost 5 percent. Analyst Romain Gourvil from Berenberg Bank spoke of solid annual figures and a solid outlook – but the forecast for the inflow of funds leaves a lot to be desired. Investors could also have expected a little more ambition with the margin, he wrote. Financial analysts have long been complaining that the money for capital expenditure at VW is comparatively loose.
CEO Oliver Blume prepared the group for a transition year. “The cleanup work has been completed,” he said, according to the statement. The essential course for the restructuring of the group has been set. “We can build on this in 2024 and have a solid basis for an accelerated ramp-up from 2025.”
After a strong increase in sales in 2023, the CEO expects revenue to grow by up to 5 percent this year. The operating return on sales – i.e. the proportion of revenue that remains as profit in day-to-day business – should be 7.0 to 7.5 percent, if possible above the previous year’s value of 7.0 percent.
Billion-dollar savings and profit programs that VW has launched in its brands are intended to help. “Our sales have increased significantly. But the bottom line is that the result has remained the same. And with a 7 percent margin, we are still a long way away from the returns of our competitors,” said Antlitz. “This applies in particular to our volume brands, especially the Volkswagen brand.”
The carmaker has largely processed the high order backlog from the time of the chip shortage, said the finance director. “Incoming orders are currently still below our plans for 2024 – especially in the BEV sector,” he said, referring to fully electric battery cars (BEV). “2024 will demand a lot from us.”
Last year, thanks to a final spurt, the group’s sales climbed unexpectedly strongly by 15.5 percent to 322.3 billion euros, according to preliminary figures, also thanks to the already known sales increase of almost 12 percent to 9.24 million vehicles. A higher proportion of newer and more expensive vehicles boosted sales, as did higher selling prices.
However, the operating result only increased by a good two percent to 22.6 billion euros. The return on sales therefore fell from 7.9 to 7.0 percent. Among other things, higher product costs and valuation effects from raw material hedging had a negative impact, which had an impact of 3.2 billion euros on the balance sheet. VW expects some improvement in the new year and estimates the expected operating return on sales at 7.0 to 7.5 percent. Analysts had a value on the list that was the same as the previous year.
VW initially did not provide any information on net profit. On March 13, the company will present detailed financial figures and the annual report. As expected, the dividend for the preferred share listed in the DAX is expected to increase from EUR 8.76 per share to EUR 9.06. According to the statutes, common shares each receive 6 cents less in profit participation.
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WOLFSBURG (dpa-AFX)
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