Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Why Volkswagen’s potential shift to higher profit models matters to investors
German car giant Volkswagen (VOW3:ETR) plans to axe up to 60% of its combustion-powered models by the end of the decade and sell fewer cars overall to concentrate on producing more profitable premium vehicles, according to reports.
‘The key target is not growth,’ finance chief Arno Antlitz told the Financial Times. ‘We are (more focused) on quality and on margins, rather than on volume and market share.’
The strategy move would be a departure for the company, which over much of the past decade had been clear it wanted to become the world’s number one car maker.
Former VW chief executive Martin Winterkorn, who resigned in the wake of a diesel-emissions cheating scandal, had made it his goal to beat Toyota (TM:NYSE) and General Motors (GM:NYSE) to become the world’s top-selling automaker by 2018.
But the automotive landscape has changed dramatically in recent years with electric and hydrogen-powered vehicles becoming increasingly affordable and reliable, and sales gaining traction with consumers.
In 2021, 2.27 million new passenger plug-in electric cars were registered across Europe, according to data from EV Volumes, a 66% increase on 2020’s 1.37 million units.
Volkswagen’s ID 3 and ID 4 models were ranked third and fourth most popular last year, selling a combined 124,573 models. Only Tesla’s (TSLA:NASDAQ) Model 3 and Renault’s (RNO:EPA) ZOE sold more vehicles.
The move from volumes to higher-priced cars has ramifications for VW enthusiasts and investors alike. The strategic shift could call time on some of the car maker’s most popular models, such as the VW Golf, which first rolled off assembly lines in 1974.
Investors are expected to warm to any shift towards higher-quality profits in an industry that has for decades relied on shifting more cars to increase profits, even if that often meant paying for it with deep discounts and incentives.
Volkswagen has embraced changes to the automotive industry and invested heavily in high-tech manufacturing facilities. ‘We have a significantly lower fixed-cost base, so we are less dependent on volume and less dependent on growth,’ VW’s Antlitz told the FT, signposting the 10% reduction made to the company’s 2019 €41 billion fixed costs ahead of schedule while investing in software development and new units.
VW shares, which trade on the Frankfurt exchange, peaked in 2015 at €253.20. They have endured a bumpy ride over the past year with widely reported microchip shortages and rising battery raw material costs hurting performance. The shares are currently trading at €149.70.