#vw
$VOW (-0,29 %)
Disclaimer: This article does not constitute investment, tax or legal advice, but reflects my personal opinion only. The information contained herein is based on publicly available sources that I believe to be reliable, but I do not guarantee the accuracy, completeness or timeliness of the information. Financial and corporate data may change at any time. Readers should conduct their own research and seek professional advice when making investment decisions. I accept no liability for any financial loss or other damage arising from the use of or reliance on this article. Financial and market data may change at any time.
Hi folks,
The last posts in short format were well received, thanks for the great feedback.
Today's post will once again focus on a well-known German company - but this time it's Volkswagen. A brand that everyone should perhaps have heard of. Today I would like to give my opinion on Volkswagen's annual report and the general situation surrounding the strongly expansion-driven market in China.
But where does Volkswagen currently stand?
Volkswagen AG is one of the world's leading car manufacturers with a significant presence in the Chinese market. China plays a central role in the Group's global performance and future growth strategy. The dynamics of this important market and the financial health of Volkswagen are essential cornerstones of the German automotive industry and have a significant impact on the 2 prominent business segments of the VW Group. The "Automobiles" business segment is just as intertwined with the performance in the Chinese market as the second business segment of Financial Services, which essentially deals with various financing issues for the first business segment. In general, Volkswagen is home to well-known brands such as VW, of course, and AUDI in the higher-priced segment, but also strong brands such as Bentley and Lamborghini in the luxury segment. So while the luxury brands tend to appeal to a clientele with sports cars, high horsepower figures and driving aesthetics, the commercial vehicle segment around Scania and MAN tends to serve the transport industry, among others. I therefore believe that the Volkswagen Group is broadly positioned here (see (1), (12)).
A few days ago, Volkswagen published its financial results for 2024 and specified its current role and strategic orientation in China, so what figures did Volkswagen publish?
In the 2024 financial year, the Volkswagen Group achieved global sales of 324.7 billion euros, a slight increase compared to the 322.3 billion euros in 2023 (see (1), (2)). This growth is primarily due to the positive development in the Financial Services segment. By contrast, the automotive business recorded a slight decline in revenue, which is mainly due to lower sales volumes (see (2), (3)). This illustrates that the challenges in 2024 were primarily in the area of vehicle production and sales. The Group's operating result amounted to EUR 19.1 billion in 2024, a decrease of 15% compared to the previous year's EUR 22.5 billion (see (1)). The operating margin was 5.9% (see ibid.). This decline in earnings is mainly due to a significant increase in fixed costs, which includes extraordinary expenses of EUR 2.6 billion net for restructuring measures (cf. ibid.). These investments in the future direction of the company and the adjustment to changing market conditions have therefore had a short-term impact on profitability. Net cash flow in the Automotive Division amounted to EUR 5.0 billion in 2024, which is significantly lower than the figure of EUR 10.7 billion in 2023. This significant decline in net cash flow currently represents a rather negative development in the VW Group's liquidity environment. The associated net liquidity in the Automotive Division amounted to €36.1 billion at the end of 2024 (see ibid.). The Volkswagen Group's global vehicle sales amounted to 9.0 million units in 2024, a decrease of 3.5% compared to the 9.4 million units in 2023. The 9.5% decline in deliveries in China to 2.9 million vehicles is particularly noteworthy. The development in China therefore had a significant impact on the Group's global decline in sales (see (3), (4), (5)). Overview of a few figures for the 2024 financial year compared to 2023:
- Sales increased slightly: +0.7% to € 324.7 billion
- Operating result fell significantly: -15.1% to € 19.1 billion
- Operating margin under pressure: decline from 7.0% to 5.9
- Net cash flow in the Automotive Division halved: From €10.7 billion to €5.0 billion
- Global vehicle sales down: -4.3% to 9.0 million units 🚙
- China the problem child? Vehicle deliveries there down -9.4% to 2.9 million units 🇨🇳
How could things look for Volkswagen in China?
In 2024, Volkswagen recorded a decline in sales of 9.5% to 10% in China (cf. ibid., cf. (9)), which led to a decline in market share of 2 percentage points ((2), (3)).
This decline occurred in a market environment characterized by intense competition and price wars, in which over 120 competitors operate (see (1), (6), (7)).
In this situation, in my opinion, Volkswagen is apparently pursuing a strategy of prioritizing profitability and not gaining market share at all costs (see (7), (8), (9)). However, local brands such as BYD dominated the Chinese market in 2024 and sold significantly more vehicles than the Volkswagen Group (see (8), (9), (10)). The strength of local competition therefore represents a significant challenge for Volkswagen. Volkswagen is pursuing the "In China for China" strategy (see (1), (10), (11)) in order to meet these challenges and exploit the opportunities in the Chinese market.
This strategy emphasizes the localization of products and technologies in order to meet the specific needs and preferences of Chinese customers (see (8)).
A deep understanding of local preferences and the development of technologies tailored to them could be crucial for success in this market. Partnerships and collaborations are an important part of this strategy. For example, Volkswagen has agreed a strategic collaboration with XPeng to build a super-fast charging network in 420 cities in China with over 20,000 charging points (see (1), (13), (14)). The expansion of the charging infrastructure is a key factor in promoting electromobility and improving the customer experience. There is also a strategic cooperation agreement with the FAW Group, under which eleven new models are to be launched on the market from 2026, including ten NEVs (New Energy Vehicles) (see (1), (10), (13)). These include a mix of battery electric vehicles (BEVs), plug-in hybrids (PHEVs) and vehicles with range extenders (EREVs) , demonstrating a flexible approach in the field of new energies. Among other things, the Jetta brand will launch its first electric model, which is aimed at the growing segment of entry-level electric vehicles (cf. ibid., cf. (5)).
In the field of electrification, Volkswagen is pursuing the ambitious goal of offering at least 30 fully electric models across all brands in China by 2030 (cf. (1), (6), (9), among others). An important step here is the development of the China Electronic Architecture (CEA) for the local production of Volkswagen brand electric vehicles from 2026 in cooperation with Cariad China and XPeng (see (9), (14)).
The development of local technology capabilities is crucial for faster innovation and cost efficiency. In addition, Volkswagen plans to gradually hybridize its models with combustion engines and convert them into an electrified fleet (see (9)).
The competitive landscape in China is characterized by strong competition from local EV manufacturers such as BYD, Nio and up-and-coming "smart EV" brands (cf. ibid.). These competitors are often characterized by a high speed of innovation and rapid adaptation to evolving consumer preferences, especially in terms of advanced technology and connectivity (see (10), (13), (14)). The comparatively slower decision-making processes and earlier challenges in software development (e.g. CARIAD) could be a disadvantage for Volkswagen (cf. ibid.). In addition, brand relevance is becoming less important in smaller cities, which could force Volkswagen to focus on other competitive factors (cf. e.g. (1), (13)).
Despite these challenges, there are also opportunities for Volkswagen in the Chinese market. The strong position in the segment of vehicles with combustion engines continues to generate revenue and can finance the transformation to electromobility (see (1), (2), (6)). The consistent focus on the needs of Chinese consumers through the "In China for China" strategy and local research and development efforts may be promising (cf. ibid.).
Partnerships with local technology companies such as XPeng and Horizon Robotics can accelerate development in key areas such as charging infrastructure and autonomous driving. In addition, an extensive product offensive with around 40 new models is planned between 2025 and 2027, with a strong focus on NEVs (cf. (5), (6), (9)).
Outlook for 2025 on the Chinese market:
Volkswagen mMn expects a further decline in market share in China in 2025, before stabilizing during the year and aiming for a turnaround in 2026 (cf. (1), (3), (6)). The company plans to stabilize its position by the end of 2025 and reverse the downward trend in 2026 through new initiatives, an improved cost base, technology and infotainment systems. The planned product offensive should take full effect in 2026 and 2027 . Worldwide, Volkswagen expects "strong growth" in sales of battery electric vehicles (BEVs) in 2025 and a global market share of 10% to 14% in this segment (see (1), (6)).
Volkswagen's financial performance in 2024 shows a slight increase in sales but a significant decline in profits, partly due to challenges in the Chinese market and restructuring costs. The company faces intense competition in China from local EV manufacturers and changing consumer preferences for technologically advanced vehicles. Volkswagen's "In China for China" strategy, the focus on electrification and local partnerships as well as the planned product offensive are key initiatives to address these challenges and regain market share. The outlook for the Chinese market in 2025 points to short-term challenges, but the long-term potential of Volkswagen's strategic initiatives remains (see (1), (5), (13)).
Are you invested in Volkswagen? What do you think of this whole "In China for China" approach?
👍 - am invested in Volkswagen
🚀 - no thanks you
Your Bass-T
SOURCES
(1) https://www.volkswagen-group.com/en/financial-reports-18134#2024
(2) https://www.volkswagen-group.com/en/investors-15766
(3)https://www.vwfs-overseas.com/Investor-Relations.html
(4)https://www.yicaiglobal.com/news/volkswagen-expects-its-china-market-share-to-keep-shrinking-in-2025
(5)https://www.automotivelogistics.media/ev-and-battery/vw-looks-at-digital-architecture-for-rapid-local-ev-roll-out-in-china/46582.article
(6)https://www.shine.cn/biz/auto/2503175817/
(7)https://www.morningstar.com/news/dow-jones/202501143153/volkswagen-car-deliveries-fall-as-challenges-in-china-continue-update
(8)https://www.canalys.com/insights/changing-consumer-preferences-intelligent-vehicles
(9)https://www.just-auto.com/news/volkswagen-sales-revenue-2024/
(10)https://www.trendforce.com/presscenter/news/20250225-12486.html
(11)https://volkswagengroupchina.com.cn/en/news/Detail?ArticleID=1E17A7AF20174FF5A3B55AD1707D38A3
(12)https://de.marketscreener.com/kurs/aktie/VOLKSWAGEN-AG-436737/
(13)https://www.businessinsider.de/wirtschaft/byd-volkswagen-wird-vom-konkurrenten-in-china-ueberholt/
(14)https://german.xinhuanet.com/20250108/03d74ea691ff4153946c485aa0481281/c.html