Volkswagen cuts 2024 forecast amid weak car demand

Volkswagen has revised its 2024 forecast downward for the second time in three months, citing underperformance in its passenger car division and increasing pressure on Europe’s top automaker.

The company now anticipates a profit margin of around 5.6%, down from a previously projected 6.5-7%, falling short of the 6.5% predicted by analysts. Sales are also expected to drop by 0.7%, bringing the total to €320 billion ($356.7 billion), as opposed to the previously expected 5% increase.

This forecast adjustment comes as other major German automakers, including BMW and Mercedes-Benz, have also downgraded their financial expectations due to weakening demand in China, the world’s largest car market.

Volkswagen's revised outlook is set against the backdrop of challenging labor negotiations with IG Metall, Germany’s largest union.

The discussions center on wages and job security, and failure to reach an agreement could potentially lead to factory closures, a first in Volkswagen’s history.

In addition, the company has lowered its global delivery forecast for 2024 to around 9 million vehicles, a decrease from its earlier prediction of up to a 3% rise over the 9.24 million vehicles delivered in 2023. Porsche SE, Volkswagen’s largest shareholder, also cut its forecast in response to Volkswagen’s downgrade.

The German automaker’s struggles reflect a broader economic slowdown that has impacted Germany’s export-reliant economy.

High energy costs, a shortage of skilled labor, and competition from cheaper Asian manufacturers have compounded the challenges faced by local industrial giants such as Thyssenkrupp and BASF.

These difficulties are also straining Germany’s traditional labor relations model, which relies on cooperative agreements with powerful unions.

While beneficial during periods of growth, this system is proving problematic as cost increases surpass wage expectations.

Globally, the automotive industry is grappling with similar pressures, particularly from China. In the US presidential race, Republican nominee Donald Trump has expressed concerns that China could dominate future auto production, while the Biden administration has accused China of flooding global markets with excess automotive exports. Proposed US regulations may severely limit Chinese car imports.

Volkswagen will release its third-quarter results on October 30, 2024.

The company now expects net cash flow for its automotive division to be around €2 billion, down from its previous estimate of €2.5-4.5 billion.