Volkswagen doubles down on cost cuts to try to revive margins

By Victoria Waldersee

BERLIN (Reuters) -Volkswagen will need to make "significant cost-cutting efforts" in the second half of the year and beyond if it is to revive profit margins, the automaker said on Thursday, after reporting first-half margins it described as "too low".

The German group is further reducing production capacity and changing software spending following its investment in electric vehicle maker Rivian, it said.

It had already cut capacity by 25% in certain locations, including its main plant in Wolfsburg, as part of a wider goal of reducing capacity by 10% across Europe.

Volkswagen is revamping its line-up globally with bespoke EV models in particular for the Chinese and U.S. markets as it tries to fend off competition from the likes of Tesla and China's BYD.

But, like many in the industry, it is struggling with slower than expected demand for EVs, as well as supply chain challenges and rising costs - even as European and U.S. regulators try to keep cheap Chinese EVs out of their markets with tariffs.

CEO Oliver Blume said on Thursday Volkswagen would join some rivals in prolonging its combustion engine line-up, potentially adding new models across its brands but without increasing total investment spending.

With the focus on costs, Chief Financial Officer Arno Antlitz said investment spending for 2025-2029 would be reduced to around 165 billion euros from 180 billion for 2024-2028.

"It's about costs, costs, and costs," Blume said.

Volkswagen is in the midst of a 10 billion euro savings drive announced in December, with cuts of up to 4 billion euros due in 2024.

The impact of some measures, like incentivising early retirement, would take time to take effect, Antlitz said.

MARGINS AND SOFTWARE

Volkswagen posted second-quarter earnings before interest and taxes of 5.46 billion euros, down from 5.6 billion euros a year earlier.

That was largely in line with analyst estimates after a cut in 2024 margin guidance in July to 6.5-7% from 7-7.5%.

Volkswagen shares were down 1.6% at 1005 GMT.

The operating margin at its core VW brand sank to 5% in the first half due to restructuring costs, while premium brand Audi's returns were hit by supply chain bottlenecks.

"A (group) return of 6.3% after six months is too low," Antlitz said in a statement. "We will have to make significant cost-cutting efforts in the second half of the year and beyond in order to achieve our goals."

Volkswagen said in July it planned to invest up to $5 billion in Rivian as part of a venture to share EV platforms and software, prompting analysts to question the future of the group's own software unit Cariad, which has been plagued by delays and losses since its inception.

Investment in the unit would fall as a result of the Rivian venture, Blume said on Thursday.

Cariad would drive Volkswagen's efforts in infotainment and connectivity, but the next-generation software platform would be built out of the joint venture, Antlitz added.

($1 = 0.9235 euros)

(Reporting by Andrey Sychev and Victoria Waldersee, Editing by Michael Perry and Mark Potter)