Volkswagen ups profit forecast
Volkswagen has vowed to be the company that will make electric cars affordable for the masses.
But an earnings report published Friday showed how the cost of an emissions scandal could interfere with those plans.
Net profit in the third quarter fell about 50 percent, to $1.3 billion, after the company set aside 2.6 billion euros to cover the unexpectedly high cost of repairing diesel cars in the United States that contained illegal, emissions-cheating software. The automaker had warned last month the emissions scandal would cut into earnings.
But Volkswagen on Friday upgraded its profit forecast for the year after third quarter sales revenue grew to $64.6 billion, up 5.8 percent over the same period a year ago.
Sales revenue grew significantly year-on-year to $199.7 billion through September, according to the company that has an assembly plant in Chattanooga. Operating profit before special items climbed to $15.5 billion in the first nine months, up 17.4 percent, the company reported.
For all of 2017, the automaker that produces VW, Audi, Porsche and other brands expects group operating profit before special items will be “moderately higher” than its original target of between 6 percent and 7 percent.
One way Volkswagen was able to report a profit in the quarter was by cutting spending on research and development. That may not be a wise strategy during what Matthias Müller, chief executive of Volkswagen, described in a statement Friday as a “profound structural transformation” in the auto industry.
Traditional car companies are spending heavily to develop battery powered and self-driving cars, while still maintaining their lineups of cars with internal combustion engines. Supporting both old and new technologies is expensive, and puts companies such as Volkswagen, Ford or General Motors at a disadvantage compared to new companies like Tesla, which builds only electric vehicles.
Volkswagen has announced ambitious plans to offer a lineup of battery-powered vehicles beginning in late 2019 that would be affordable for middle-class buyers.
The German company aims to deploy its enormous manufacturing network to churn out battery-powered cars faster, and in greater volumes, than Tesla, which has had trouble meeting demand. But those plans may be difficult to reconcile with cuts in the research and development budget.
Volkswagen said Friday legal settlements and other costs related to the emissions cheating have drained 14.5 billion euros this year from company coffers. That is money Volkswagen would certainly prefer to spend developing new products.
Volkswagen might be able to find savings in other areas, for example, by diverting money that could have been used to develop new diesel engines, said Stefan Bratzel, director of the Center of Automotive Management at the Fachhochschule der Wirtschaft, a technical university in Bergisch Gladbach, Germany.