Skills shortage knocks VW outlook
• Departure of engineers after ‘dieselgate’ scandal makes it harder for German car manufacturer to meet new emissions regulations
Volkswagen has warned that a shortage of engineers is hampering efforts to get its cars to meet new antipollution rules, clouding its sales outlook and overshadowing a forecastbeating 23% rise in underlying operating profit.
VW has seen a raft of engine experts depart since admitting to systematic emissions cheating in September 2015. That had left the car maker short of engineers needed to work on models complying with stricter emissions tests, CE Herbert Diess said on Wednesday.
“Engine development expertise has been lost,” said Diess, explaining that getting engines certified for road use had become a lot harder under a new worldwide harmonised light-duty vehicles test procedure that would take effect from September.
VW poached BMW engine development expert Markus Duesmann to help overcome the problem, but warned that delays in getting road certification would result in bottlenecks for some model variants between August and October.
“That impacts capacity utilisation at our plants, so there will be closure days at our sites during this period,” Diess said.
Although VW is sticking to its delivery targets, meeting them will be hard.
“One thing is clear, though: this will be a titanic task for the second half of the year, particularly on the margin side,” said Diess, who was promoted to the top job in April after running the VW brand.
At a media conference on Wednesday to discuss secondquarter results, Diess said the changeover to the new test procedure posed “the biggest volume and earnings risk”.
VW shares were down 1.3% at midday on Wednesday.
The introduction of new rules was accelerated in the wake of VW’s diesel cheating. Regulators were taking a more granular look at vehicles and testing car pollution levels much more comprehensively, Diess said.
“They look at what kind of tyres were fitted and whether the air-conditioning is switched on,” Diess said.
In June, VW warned that production of up to 250,000 cars would be delayed because of the new tests and said in July it would be renting parking spaces to stockpile vehicles that could not be sold.
Rival car maker Daimler and supplier Valeo cut their outlooks, citing the introduction of new stringent emissions standards and a slowdown in growth as a trade war and tariffs hamper global trade.
General Motors, Ford and Fiat Chrysler lowered their fullyear profit forecasts last week due to escalating tariffs.
Although its sales have held up, VW is still suffering the financial consequences of the “dieselgate” emissions scandal almost three years since it broke. The scandal had cost it €27.4bn so far and secondquarter earnings took a €1.6bn hit to cover a fine and legal expenses, it said.
A 5.5% rise in vehicle sales helped lift second-quarter operating profit before special items to €5.58bn from €4.55bn a year earlier, compared with analyst consensus for €4.98bn in a Reuters poll.
After special items, group operating profit dropped by 13% to €3.95bn.
“These are solid numbers despite the legal expenses,” NordLB analyst Frank Schwope, who has a “buy” rating on VW, said on Wednesday.
Despite confirming its outlook for a full-year adjusted operating margin of between 6.5% and 7.5%, VW warned that sticking to its financial targets would be a challenge. After special items, VW said it anticipated its operating return on sales would fall “moderately short”.
In the wake of its emissions scandal, VW accelerated a push to expand its portfolio of electric cars. Diess said it could start serial production of solid-state battery cells from 2024 or 2025. “We must not make ourselves dependent on a few Asian manufacturers in the long term,” he said, explaining that advances in ceramic separators had raised the viability of mass production.
A solid-state battery factory would likely be in Europe, or even in Germany under the right conditions, Diess said.