Volkswagen shares slipped on Wednesday after an overnight profit warning triggered in part by the possible closure of an Audi plant and a 3.8 per cent drop in second quarter sales dented by China.
Deliveries in China were down by nearly 20 per cent amid a wider decline in sales of combustion engine cars which still make up the majority of Volkswagen’s lineup in the country.
As China heads speedily to an all-electric market, Volkswagen has said it will be raising its battery-powered offerings in coming years and prioritizing profitability even as rival local car makers slash prices up by to 50 per cent.
“We do not expect an easy year,” a spokesperson told reporters.
The company lowered its 2024 operating return on sales forecast to 6.5-7 per cent from 7-7.5 per cent and said the Audi brand was considering closing its Brussels site, which employs about 3,000 people, due to low demand for its higher-end electric cars.
Volkswagen shares were down 1.13 per cent at 105.4 euros at 1030 GMT, contributing to a 5.5 per cent fall so far this year.
Finding an alternative use for the plant or closing it, as well as other expenses, would cost up to €2.6-billion ($2.8-billion) this financial year, Volkswagen announced.
A consultation process is now ongoing on finding alternative solutions for the site, it said.
The future of Audi’s Brussels plant was thrown into question earlier this year after the car maker said the follow-on model to the Q8 e-tron would be built in Mexico.
Rising orders for newer models such as the Q6 e-tron coming to market this year had led to a sharp drop in interest in the older Q8 e-tron produced in Brussels, Audi said on Tuesday.
Audi has struggled to catch up with premium car maker competitors BMW and Mercedes in the transition to electric vehicles.
“Products like the first generation Q8 e-tron were halfway solutions – not the full clean sheet like Audi has done with its new premium electric platform,” said Stephen Reitman of Bernstein Research. “The potential of the Q6 is higher.”
Audi has promised a refresh in 2024 and 2025 with over 20 new EV and combustion engine models, followed by EV-only models from 2026.
Volkswagen, which has strong union representation, has not closed a plant in four decades, but analysts said the car maker was under pressure to reduce significant amounts of excess production capacity.
“Given the low margin on first quarter results, now is the time to negotiate with unions,” said Daniel Schwarz of Stifel Research.
Some analysts welcomed the news of the possible plant closure as a sign the car maker is addressing its costs and excess capacity.
“People worry because the headline figures play into the concern that VW is in trouble. but this is a business with too much cost and they’re addressing that,” Philippe Houchois of Jefferies said.