VW Raises Earnings Outlook as Chip Crunch Cuts Deliveries

Volkswagen AG lifted its earnings outlook after strong profits at its luxury-car brands helped to limit the fallout from the global chip shortage, which forced it to cut expectations for deliveries this year.

The automaker expects adjusted operating return on sales to rise to between 6% to 7.5%, raising its outlook for a second time this year. Semiconductor scarcity will be more severe during the second half of the year, VW said, also highlighting risks from volatile commodity prices .

“We have successfully contained the impacts of the semiconductor bottlenecks to date, although we anticipate somewhat more pronounced effects in the third quarter,” Chief Financial Officer Arno Antlitz said in a statement.

VW is joining peers including Daimler AG and Stellantis NV with robust results, bucking chip issues that have stymied manufacturing worldwide along with lingering restrictions related to the pandemic. Solid profits are pivotal to financing VW’s plans to phase out combustion engines and push into software, mobility services and automated driving features.

Tesla Inc., which VW has vowed to unseat as the leading EV maker, has been picking up speed as well with eight straight quarters of profit and margins that dwarf those of incumbent rivals.

VW’s adjusted operating profit of 11.4 billion euros ($13.5 billion) in the first six months was ahead of the 10 billion euros it reported in the same period of of 2019, before the pandemic hit. Faced with limitations on how many production lines they can keep running, automakers have shifted output to their most lucrative vehicles, and lower inventories are enabling manufactures to command higher prices.

Automotive net cash flow climbed to around 10.2 billion euros, providing VW with robust financial muscle to finance investments.

VW has lost production of a high six-digit number of vehicles so far due to the squeeze on chips, and the fallout on profit might become more pronounced in the coming months. The shortage has contributed to a slow start for VW’s important ID.4 electric SUV in China, stoking concern about the company’s operations in its largest sales region.

The carmaker in March mapped out plans to build six battery factories in Europe, alongside a slick presentation on battery technology and a model lineup of about 50 purely battery-powered vehicles by 2030. Investors have cheered the industry’s most comprehensive push to transition from combustion engines, bidding up VW’s common shares more than 60% this year.

VW has budgeted 73 billion euros for electrification and digital offerings from this year through 2025, half of overall spending.

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