Volkswagen Could Take Hit in Profitability With Switch to EVs

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【Summary】Making the switch to developing electric vehicles could affect Volkswagen’s profitability, as the German brand is investing billions into coming out with numerous EVs in the near future.

Original Vineeth Joel Patel    Mar 04, 2018 9:30 AM PT
Volkswagen Could Take Hit in Profitability With Switch to EVs

Volkswagen's "dieselgate" emissions scandal really did a number on the way consumers view the brand. The German automaker is looking to change that though, with a future that focuses on a cleaner way forward with electric vehicles. As a way of making up for its crimes, the brand created Electrify America, which it would use to help promote the adoption of electrified cars. 

In addition to its Electrify America plan, Volkswagen Group, which includes Audi, VW, Bentley, Lamborghini, Porsche, Skoda, Seat, Bugatti, and more, has plans to electrify all of its 300 models by 2030. The switch to EVs could see Europe's largest automotive group see a hit in profitability. 

VW Experiencing Growth At The Moment

According to Reuters, VW expects to see a return of between 6.5 and 7.5 percent on sales for 2018. The brand reached 7.4 percent last year. VW, though, does expect revenue to exceed its 2017 record of approximately $284.13 billion by roughly five percent. 

"There is room for them to go higher," said Juergen Pieiper, an analyst with Bankhaus Metzler. "The market probably needs to scale back its expectations a bit." After the automaker released its results, shares fell and closed 0.8 percent lower than what it started at, claims the outlet. 

Before the brand admitted to cheating on its U.S. diesel emissions tests, VW didn't have a plan in place to make EVs. Tighter regulations and China's move to electrified vehicles has changed that. 

"We must not relax our efforts because huge challenges lie ahead," said Frank Witter, VW's finance chief. "Shaping the group's transformation will not only require a great deal of time and energy, it will also be very expensive." 

Challenges Lie Ahead For The Brand

VW claims that its earnings were being driven by sales of higher-margin models, including the redesigned Tiguan SUV and the Arteon sedan. The automaker also claims to be saving more money thanks to modular platforms. 

Reuters claims that VW is looking for its sales to exceed the brand's record of 10.7 million cars from last year, as demand is up globally. Clearly, VW's diesel woes haven't affected the brand. 

Despite all of the money-saving strategies and strong expectations, VW has a long battle ahead of itself. General Motors, which has been making electric vehicles for some time now, is looking for 2021 as the date it can start making profitable EVs. Volkswagen may be expecting to make a make a profit in 2018, but the switch to focusing on EVs will definitely see the brand lose some money. How much money depends on how many EVs the brand sells, how much range the vehicles have, and how much money it spends in developing the machine. 

Electric vehicles aren't profitable at the moment, and any automaker looking to become a major player in the segment has to anticipate seeing a drop in profits until cheaper materials can be utilized and the machines become more popular. That will ring true even for a massive automaker like Volkswagen. 

via: Reuters

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