Volkswagen Expects Supply Crisis, Higher Costs To Persist; Make Significant Investments In Mexico

Volkswagen AG VLKAF VWAGY said supply chain troubles were the new norm after stagnated earnings in the third quarter but still expects growth in the autos market next year as some bottlenecks look likely to ease.

Volkswagen cut its expectations for deliveries this year to be on par with 2021, down from a previously-forecast 5%-10% rise. Still, it maintained its earnings outlook of hitting the upper end of a 7%-8.5% margin by cutting fixed costs.

Volkswagen plans to bring software unit Cariad, plagued by overspending and long delays, back on track were underway with an internal meeting likely today and several critical decisions expected in coming weeks, CEO Blume said.

The CEO hoped-for boost in Volkswagen's valuation following Porsche AG's listing did not materialize, with the carmaker's stock down more than 28% year-to-date and the sportscar brand's valuation overtaking its former parent, Reuters reported.

Third-quarter earnings stagnated below pre-pandemic levels at €4.3 billion ($4.29 billion) under the burden of its Porsche listing, suspension of business in Russia, the write-off of a self-driving startup, and issues securing parts.

Earnings of 6% across the group boosted from a 19.4% margin in the sports and luxury brands. Volkswagen remains committed to Level 4 autonomous driving, Blume said.

Volkswagen brand expects the volatile parts supply situation and mounting pressure from rising raw material and energy costs to continue in the fourth quarter and beyond the end of 2022. CFO Patrik Andreas Mayer commented: "The fourth quarter will be especially challenging with regard to global supply chains and parts supplies.

Volkswagen and Continental pledged significant investments in Mexico, totaling a record $1 billion, Reuters reports.

Volkswagen said it will invest $763.5 million between 2022 and 2025 at its complex in the central state of Puebla, one of Volkswagen's most extensive facilities globally, to build a new paint plant and start production of a new gasoline-powered car. Wind turbines would power the paint plant.

Continental AG CTTAF CTTAY looked to invest around €210 million ($209.16 million) to open a new automotive electronics factory.

Price Action: VLKAF shares traded at $171.57 in the premarket on the last check Friday.