Volkswagen lowers forecasts amid declining demand and rising EV competition

Volkswagen has revised its forecasts downward, anticipating an operating margin of 5.6%, a significant drop from the previously predicted 7%. This adjustment comes amid a challenging market environment, particularly in China, where a real estate crisis has dampened consumer demand. The company also expects net cash flow in its automotive division to be around €2 billion, less than half of earlier estimates. The decline in global deliveries is projected to reach approximately 9 million units this year, down from 9.24 million in 2023, contradicting earlier expectations of growth. The automotive industry is facing increased competition in the electric vehicle sector, leading to price cuts and reduced profit margins. Volkswagen's struggles are compounded by rising costs in Germany and the aggressive entry of Chinese manufacturers into the European market. As a response, the company is contemplating plant closures in Germany for the first time, which could lead to conflicts with labor groups. Volkswagen's passenger-car brand and commercial vehicles unit are underperforming, prompting concerns about the overall health of its high-volume carmaking group, which includes Skoda and Seat. The company has also flagged risks associated with a deteriorating macroeconomic environment, which could further impact its operations. The situation reflects broader challenges faced by major German automakers, including Mercedes-Benz and BMW, which have also issued profit warnings. As the industry adapts to changing market dynamics, Volkswagen's leadership is under pressure to implement strategies that enhance competitiveness and address overcapacity issues.