In March, car companies have handed over the answer sheets for the 2021 financial performance. Among them, in terms of Volkswagen's fiscal year performance, the past year has under the pressure of transformation, and there are more challenges to go against the trend and break the waves.
The pandemic, chip shortages and rising raw material prices have made the global automotive business environment even more difficult. Despite this, in the face of a challenging competitive environment in 2021, Volkswagen has maintained its established business line and continued to improve efficiency.
At the same time, in the first year of the official implementation of the ACCELERATE strategy, Volkswagen has reached several important milestones in the areas of electrification, digitalization and new business models, accelerating the transition from an automaker to a software-driven mobility service provider.
In the face of business difficulties, Volkswagen has grasped the quantity of sales and the quality of profitability
Volkswagen's advance and retreat in 2021 is particularly clear in the financial report. In particular, the sharp contrast between the decline in sales and the rise in profitability and efficiency can be seen in Volkswagen's grasp and trade-off of sales quantity and profitability quality.
At the Volkswagen brand launch on March 16, Ralf Brandst, CEO of volkswagen passenger car brands, said: "Compared to 2020, our profitability, risk resilience and efficiency have increased significantly. ”
The reason why the ability to resist risks is improved is because of the particularity of the business environment in 2021. In 2021, due to insufficient supply of chips, Volkswagen's production capacity was once constrained, and the continued spread of the epidemic and the rise in raw material prices also had a certain impact on Volkswagen's supply chain. Affected by this, Volkswagen delivered a total of 4.9 million vehicles in 2021, down 8% from 5.3 million in 2020.
However, despite the decline in sales, Volkswagen's sales revenue in 2021 increased by 7% year-on-year to 76.1 billion euros; operating profit excluding special project expenses reached 2.5 billion euros, an increase of 2 billion euros year-on-year; and operating sales return excluding special project expenses was 3.3%, reaching the previous target range of 3% to 4%.
Judging from the officially disclosed financial reports, the rise in sales revenue, operating profit, and the achievement of business sales targets are mainly due to the following reasons.
First of all, thanks to Volkswagen's strict expenditure management. In 2021, higher raw material expenditures have a great impact on product costs, especially in steel, precious metals and other raw material expenditures far exceed 2020. Fortunately, Volkswagen exceeded its fixed cost target for 2021, reducing it by about 1 billion euros compared to 2019 before the epidemic.
Second, by selling models with higher levels of configuration, Volkswagen has improved the quality of profitability. Through the planned distribution of chips, it is possible to ensure that profit margins are improved in the event of declining sales.
In addition, Volkswagen's turnaround in the North and South American markets has also made a positive contribution to the overall operating profit of the Volkswagen brand. In addition, the capital expenditure ratio was reduced by prioritizing investment projects.
An optimized cost structure, strict expenditure management, and an excellent product matrix will enable Volkswagen to further strengthen its competitiveness in 2021. At the same time, Volkswagen is accelerating the process of electrification and digitalization.
Maintaining a state of acceleration, the ACCELERATE strategy has begun to bear fruit
In March 2021, Volkswagen officially announced its ACCELERATE strategy to accelerate the development of electrification, digitalization, new business models and autonomous driving. A year later, it is clear that this acceleration strategy has begun to exert a strong effect.
Last year, Volkswagen launched three new electric models – id.4, ID.5 and their high-performance GTX versions – as well as the ID.6, which was built specifically for the Chinese market. In fiscal 2021, the Volkswagen brand delivered a record number of electric vehicles worldwide, with a total of more than 369,000 vehicles delivered, up 73% year-on-year, under the outstanding product matrix. Among them, there were about 106,000 plug-in hybrid vehicles, an increase of 33% year-on-year, and 263,000 pure electric vehicles, an increase of 97% year-on-year, doubling.
In the field of digitalization, important milestones have also been reached. In 2021, Volkswagen will become the first mass-produced automaker to offer OTA remote wireless upgrades. In Europe, more than 100,000 upgrades have been achieved on the ID. family model.
The achievements in electrification and digitalization are inseparable from the investment in research and development costs. Compared to 2020, Volkswagen's R&D spending ratio for 2021 has increased, with a 4.1% ratio almost in line with the strategic target of 4%. This reflects Volkswagen's commitment to transformation and its strong investment in future projects.
At the March 16 launch, Alexander Seitz, CFO of Volkswagen's passenger car brand, said, "In terms of investment, what is important is not only the amount, but also the effective investment target. ”
It is revealed that the Volkswagen brand is spending 3 billion euros on projects related to future development in a more targeted manner, in line with the strategic direction of the ACCELERATOR brand, including factory transformation, electrification of the product lineup and digitalization. At Volkswagen, about half of the investment is spent on the electrification of products and plants.
According to the plan, in 2022, Volkswagen will continue to accelerate the transformation of the Volkswagen brand as always. This far-reaching transformation plan will be premised on good profitability.
Volkswagen plans to significantly increase the delivery of pure electric vehicles this year, and it is expected that chip supply will improve in the second half of this year at the latest, which will help Volkswagen achieve this goal. In addition, operating profit, sales revenue and operating return on sales are expected to increase in 2022, with the goal of achieving a 6% return on operating sales by 2023.
In order to further improve the quality of net income, Volkswagen will improve the efficiency of the entire value chain this year and beyond, further strengthen cost management, increase plant productivity, and maintain a stable cost/income ratio by reducing model derivatives and complexity. Increase plant productivity and further reduce break-even points.
Firmly in the direction of electrification, the Chinese market is still one of the priorities
The results of multiple dimensions in 2021 prove the correctness of the direction of Volkswagen's electrification transformation.
According to Volkswagen's electrification plan, by 2030, Volkswagen's pure electric vehicles will account for more than 70% of sales in the European market and more than 50% in North America and China. By 2026, at least one new all-electric model will be launched each year.
Looking at this year's product planning, previously, ID. Buzz has already made its global debut in Hamburg and caused a sensation. In a few weeks, Volkswagen's first all-electric SUV coupe model, the more luxurious ID.5, will be available soon, which will be the first model to carry the new ID.3.1 version of the software when it is delivered. This year, Volkswagen will present for the first time the next member of the ID. family, ID. Aero Concept, the first production model will be delivered to Chinese users in the second half of 2023.
Among them, in the Fastest Growing Segment of New Energy, the Chinese market, Volkswagen's electrification offensive continues.
In 2021, Volkswagen's sales of pure electric vehicles in China reached 77,000 units, an increase of more than four times compared with 2020, but Dr. Feng Sihan, CEO of Volkswagen Passenger Car Brand China, said bluntly: "The shortage of chip supply has slowed down Volkswagen's growth rate, and we could have sold more pure electric vehicles." But many times, we have to face downtime due to chip shortages and the epidemic. ”
It is clear that the problem facing the public is not demand, but supply. According to Volkswagen, the number of orders to be delivered actually reached a highest level. This shows that the demand for Volkswagen's electric vehicle products in the Chinese market remains at a high level.
For the Chinese market in 2022, Volkswagen expects that as the chip supply shortage gradually eases, overall deliveries this year will at least return to 2020 levels, and ID. model sales are expected to more than double from 2021.
On the one hand, considering the rapid growth of China's demand for vehicle interconnection among new energy vehicle consumers, Volkswagen said that the development trend of new energy vehicles in China will be closely related to "smart cars".
This year, the Volkswagen brand will provide OTA remote upgrades for users of ID. family models in the Chinese market, not only to fix software issues in a timely manner, but also to provide new features and services to continuously improve the user experience, such as AR-HUDs and navigation systems. At the same time, Volkswagen also has a clear plan for autonomous driving, and more L2+ level autonomous driving assist functions will be fully mass-produced in the next two years.
On the other hand, Volkswagen will fundamentally strengthen its R&D capabilities and regard Volkswagen (Anhui) as an important driving force for R&D innovation, while CARIAD China will also provide strong support for localization software research and development.
In addition, in order to fully tap the market potential of new energy vehicles, it will attract new buyers, including young and "digital natives" with certain economic strength. In addition, all ID. family models are sold in China under the agency sales model, and direct contact with users is maintained continuously.
In summary, in the past year, through cost reduction initiatives and targeted improvements in the quality of profitability, Volkswagen has lowered the brand break-even point and enhanced the brand's development resilience.
At the same time, 2021 is an important milestone year for Volkswagen's electrification and digital transformation, and despite the difficulties caused by many environments, the Volkswagen brand has accelerated the pace of transformation into a technology company and has sufficient risk response capabilities. This not only lays a solid foundation for the transformation plan of volkswagen brands in 2022 and beyond, but also shows the strong institutional strength of Volkswagen as a leader and the steady courage of the giant turnaround.