Volkswagen Group's 2021: sales fell by 600,000 yuan, costs fell by 4 billion, but profits rose by 10 billion

Abstract: Volkswagen is accumulating ammunition and shooting into the transition to electrification

▲ Image source IC

Text | Wang Jingyi

Edit | Zhao Cheng

Sales are down but revenue is up, and this is 2021 for the Volkswagen Group (VOW3.DE).

In 2021, sales of 8.6 million units were sold, down 6.3% year-on-year, and the Chinese market also performed poorly due to chip problems - total deliveries of 3.3048 million units, down 14.1% year-on-year. The Volkswagen Group announced the above data at its annual communication meeting held on March 15.

But that doesn't hide its glaring performance in terms of revenue: sales of €250.2 billion, up 12.3 percent year-on-year; operating profit of nearly €20 billion, up 99.2 percent year-on-year; and net cash flow from the automotive business of €8.6 billion, up 35.4 percent year-on-year.

▲ Main financial data for 2021, source: Volkswagen Group

"We increased the Group's sales revenue by 12% by allocating scarce chips to high-margin models and reducing sales incentives." Herbert Diess, CEO of volkswagen group, attributed last year's achievements to an efficient product portfolio, cost control and efficiency gains.

Financial data is robust, but the variables are external

In 2021, the Volkswagen Group's sales revenue increased by 12.3 percent to more than 250 billion euros. In Dies's view, such achievements are quite stable, showing resilience under the epidemic.

At the same time, the Volkswagen Group launched an indirect cost management project, ahead of schedule to reduce indirect costs by 10% by 2023 (excluding R&D and capital expenditures), saving 4 billion euros compared to 2019.

Revenue growth and lower costs pushed the Volkswagen Group's operating profit to nearly 20 billion euros, nearly doubling from 10.6 billion euros in fiscal 2020.

From the perspective of each brand, the profit margin has its own advantages. The profit margin of the Volkswagen brand reached 3.3% in 2021 and the Skoda brand reached 6.1%; the capacity utilization rate of the Audi brand, although relatively low, also reached 10.5%; Bentley achieved a high profit margin of 13.7%,; and Porsche was the highest, with a profit margin of 16.5%.

In 2021, Volkswagen's automotive business achieved a significant increase in net cash flow. According to the financial report, the net cash flow of volkswagen group automotive business reached 15.5 billion euros, an increase of 5.5 billion euros over the previous fiscal year. At the end of 2021, net liquidity was EUR 26.7 billion.

Sufficient cash flow has accumulated ammunition for the Group's electrification transformation. On March 4, Volkswagen announced that it will invest 2 billion euros to build a new process-optimized plant in the main plant in Wolfsburg, Germany, to produce Trinity, the first model based on the next-generation electric vehicle platform SSP, and invest 800 million euros to build a research and development center focused on the development of the SSP platform. In the future, the SSP platform will be the Group's only production platform for the production of pure electric vehicles and will go directly to L4 level autonomous driving.

According to the plan, the plant will start construction in 2023, and the first models will roll off the production line in 2026.

Looking forward to 2022, Volkswagen Group stressed that the situation in Russia and Ukraine is the biggest variable, and it is difficult to predict how much impact it will have.

At present, the supply of wiring harnesses at Volkswagen's European plant relies on imports from Ukraine, and the factory was temporarily suspended due to logistics disruptions. Diess said it was already looking for other alternative suppliers in Europe and would shift supplies to China and the United States in the future.

For years, China was the largest single market for Volkswagen Group overseas, with a 16 percent market share in China, nearly twice that of its second-largest competitor. In 2021, the Volkswagen brand held an 11% market share in China, Porsche, Bentley and Lamborghini all set new annual sales records, achieving year-on-year growth of 7.5%, 40.0% and 54.8% respectively; the Volkswagen brand and its sub-brand Jetta delivered more than 2.4 million vehicles in the whole year, down 14.8% year-on-year.

Due to the shortage of chip supply, the Volkswagen Group delivered a total of 3.3048 million new vehicles in China in 2021, down 14.1% year-on-year.

"2021 is one of the most challenging years since we entered the Chinese market. We have a considerable order volume, but the shortage of chips has prevented our capacity from meeting customer demand. The closure of our OEMs and suppliers' factories due to the COVID-19 pandemic has exacerbated the lack of capacity and caused us to lose some market share. However, thanks to the strong performance in the first half of the year and continued challenges, we are still able to maintain our leading market position. Looking forward to 2022, the chip supply situation will still fluctuate in the first half of the year, but it is expected to gradually improve, and our production will also stabilize during the year. Dr. Feng Sihan, CEO of Volkswagen Group China, said.

It is expected that in the case of a gradual improvement in chip supply, the Volkswagen Group's global car sales will increase by 5% to 10% in 2022, and revenue will increase by 8% to 13% year-on-year.

Electric vehicle sales in Europe first, the United States second, what about China?

In the European and US markets, Volkswagen Group's electric vehicles account for 25% and 16% of the market share, respectively.

Europe, as the base camp, is the best market for volkswagen group electric vehicle sales, with annual sales of 452,900 vehicles, and the market share of electric vehicles reached 25%, which is twice the share of fuel vehicles. In the U.S. market, Volkswagen Group's market share of electric vehicles reached 7.5%, and sales volume reached the second place in the market.

In the fiercely competitive Chinese market, Volkswagen is still difficult to replicate success for a while - in 2021, the Volkswagen Group delivered a total of 92,700 electric vehicles, more than 4 times the sales volume in 2020, of which the ID. family is about 70,000 vehicles, but this still has not reached the sales target of 80,000 to 100,000 vehicles set at the beginning of the year.

This year, one of volkswagen group's goals is to double its sales of electric vehicles in China.

"The best-selling models in foreign countries may not sell well in China, consumers are becoming more and more mature, and China is even leading the world in the field of intelligent networking, so in these aspects, car companies should pay more attention to consumer demands." Zhang Junyi, managing partner of Oliver Yvrux Consulting, told Caijingqiche.com.

Zhang Junyi believes that Volkswagen Group also has a choice, that is, to develop products with a higher degree of intelligence and networking for the Chinese market. This means that it must increase China's local research and development strength, which is not only a technical problem, but also a management structure problem.

In the Chinese market, the current Volkswagen ID. family model still cannot achieve a long-range upgrade in the air (OTA, Over The Air), and car owners need to drive to the 4S store to complete the update.

Research and development of electric vehicles for the Chinese market is imperative, and software has become a major focus.

Diess said at the press conference that the software subsidiary CARIAD will launch a unified software platform in 2025, covering all brands of the Volkswagen Group, and the basic software architecture of the platform has been tested. At the same time, CARIAD will set up a branch in China to provide an exclusive software experience for Chinese users.

In its "NEW AUTO" strategy in July 2021, Volkswagen proposed that nearly 40 million vehicles should be equipped with self-developed software systems by 2030, and that software-related sales are expected to reach 1.2 trillion euros in 2030, about one-third higher than the estimated sales of pure electric vehicles and fuel vehicles combined.

"Our goal is to accelerate the Group's transformation from a traditional car manufacturer to a software-driven technology company." Dees said.