Volkswagen issues profit warning amid possible Audi plant closure

Volkswagen shares plunged over 2% early on Wednesday after the company issued an overnight earnings warning, which was prompted partly by the potential closure of an Audi plant.

Volkswagen shares dropped over 2% early on Wednesday following an overnight profit warning, partly due to the potential closure of an Audi plant.

Revised Profit Forecast

The company revised its 2024 operating return on sales forecast to 6.5-7%, down from the previous 7-7.5%. This adjustment was largely influenced by low demand for Audi’s higher-end electric cars, prompting consideration of closing the Brussels site, which employs about 3,000 people.

Financial Impact and Consultation Process

Volkswagen announced that repurposing or closing the Brussels plant, along with other expenses, could cost up to €2.6 billion ($2.8 billion) this financial year. The company has initiated a consultation process to explore alternative solutions for the site.

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Shift to Mexico

The future of the Brussels plant came into question after Audi disclosed plans to build the follow-on model to the Q8 e-tron in Mexico. Rising orders for newer models, such as the Q6 e-tron set to launch this year, have led to a decline in interest for the older Q8 e-tron produced in Brussels.

Struggles and Strategic Adjustments

Audi has faced challenges in keeping up with premium competitors BMW and Mercedes in the electric vehicle market. Stephen Reitman of Bernstein Research noted that the first generation Q8 e-tron was a “halfway solution” and not as well-developed as Audi’s new premium electric platform, suggesting the Q6 has higher potential.

Audi has pledged to introduce over 20 new EV and combustion engine models in 2024 and 2025, with a shift to EV-only models starting in 2026.

Addressing Excess Capacity

Volkswagen, known for its strong union representation, has not closed a plant in four decades. However, analysts suggest the carmaker must address significant excess production capacity.

Daniel Schwarz of Stifel Research stated, “Given the low margin on first-quarter results, now is the time to negotiate with unions.”

Volkswagen’s recent developments highlight the challenges faced in transitioning to electric vehicles and managing production capacities amidst fluctuating market demands.