Monday 18 November 2019 6:40 pm

Volkswagen cuts forecasts amid downturn in passenger car demand

German car maker Volkswagen has cut its forecasts for operating profit and sales growth because of a downturn in demand for passenger cars.

“It is fair to say that the very best of the party is over,” chief financial officer Frank Witter told analysts.

Volkswagen has become the latest automotive giant to warn that the industry is facing difficult times, as firms pump money into electric and self-driving cars while a trade war between the US and China hampers growth.

The firm said it now expects operating profit to rise at least 25 per cent over 2016-2020, down from its previous forecast of more than 30 per cent, according to presentation slides.

The Wolfsburg-based company also cut its forecast for sales growth over the period to 20 per cent from more than 25 per cent.

Shares fell four per cent to €176.

“We believe this largely reflects softer volume growth expectations,” Citi analysts said in a note.

Volkswagen maintained its targets for an operating margin of 6.5-7.5 per cent in 2019-2020 and seven to eight per cent in 2025.

It said that to counteract the costs of rolling out electric cars, it would increase sales of higher-margin SUVs and try to bring down the cost of making electric cars, chief executive Herbert Diess said.

Volkswagen’s new ID3 electric vehicle, for example, will be 40 per cent cheaper to build than the electric version of its Golf model, he told investors.

As the battery pack in the new ID3 can be used to add structural rigidity, some savings can be made to the vehicle body. Furthermore, the modular layout of the battery aids efficient packaging and economies of scale, he added.

Volkswagen said it would start producing the ID3 in Dresden as well as in Zwickau, eastern Germany.

Electric cars will reach cost parity with gasoline and diesel variants from about 2025 onwards, the company said, helping to deliver profit margin targets.