Volkswagen Automotive Group saw a strong start to the year, with a five-fold gain in operating profits. However, Volkswagen CEO cast a shadow on this bright financial picture when he warned the current chip crisis will hit the company’s earnings late in the second quarter.

Volkswagen CEO cast a shadow on this bright financial picture when he warned the current chip crisis will hit the company’s earnings late in the second quarter.

First quarter operating profits climbed to 4.8 billion euros, up from 900 million euros in 2020 when the pandemic shut down closed showrooms and factory floors. The Audi and Porsche premium brands were the largest profit generators, amounting to half the group’s earnings.

Profit increases prompted the German automaker to revise 2021 forecasts. Volkswagen now forecasts operating return on sales at 5.5% to 7% for 2021, compared to a previous range of 5% to 6.5%. Volkswagen also raised net cash flow and net liquidity projections.

“We started the year with great momentum and are on a strong operational course. This is clearly reflected in our positive quarterly figures,” said Herbert Diess, CEO of the Volkswagen Automotive Group, in a statement. 

Diess predicts Volkswagen also will suffer impacts from the chip shortage now forcing other automakers to halt production lines and prioritize popular vehicle models. In the second quarter, Diess warns the company may shutter some lines “for a few days, a few weeks.” He stressed the shortage will not impact Volkswagen as much as its competitors.

He also told analysts in the earnings call that chip shortage could lower Volkswagen’s second quarter return to 5.5% from 7%.

Another hurdle for all automakers is escalating prices of raw materials like steel and precious metals. Diess noted that identifying new sources of supply will challenge all automakers in 2021 as demand rises amid supply constraints.

Volkswagen is knee deep in an electric car push, introducing the VW ID.4 EV and the Audi Q4 e-tron crossover vehicles. Diess reported electric vehicles are less effected by the chip crisis than their gasoline-powered counterparts and noted the company aims to be the global EV leader by 2025.

“We remain committed to our transformation into a climate-neutral and software-driven mobility group,” Diess said in a statement. “Our successful e-offensive continues to gain momentum, and we have significantly expanded it with attractive new models. We also are making good progress with the key topic of digitization and have reached important milestones. There is still much we can achieve for the rest of the year.” 

The automaker has allocated financial and management resources to increasing its software expertise with a new business unit called Cariad. The unit will work to standardize key technologies across Volkswagen brands. 

Electric vehicle deliveries jumped 21% to 2.43 million vehicles in the first quarter, with China driving the surge. Deliveries of electrified models more than doubled to 133,000 vehicles, 59,900 of which represented battery electric vehicles with plug-in hybrids making up the rest. 

The company hopes to sell around 600,000 battery-powered cars in 2021. Diess added Volkswagen also is on track to comply with tightening European emission regulations. 

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