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Volkswagen’s Third Quarter Earnings Falls Short Of Expectation Because Of Chip Crunch

Volkswagen’s Third Quarter Earnings Falls Short Of Expectation Because Of Chip Crunch
A scarcity of computer chips globally forced the world's second-largest automaker Volkswagen to announce lower than expected operating profit for the third quarter while also lowering down its forecast for delivery of its vehicles as well as its estimates for sales.
The company also warned of cost cutbacks to address the challenges.
The global auto industry has been tormented by a continued shortage of automotive semiconductor chips for much of the current year, which has severely impacted the quarterly earnings of companies like Stellantis and General Motors.
Volkswagen had previously made public an ambitious strategy to become the world leader in electric vehicle (EV) sales but the global chip shortage has forced the company to now to forecast more or less flat growth in deliveries while it had predicted it would be able to grow deliveries for the entire of 2021.
According to analysts, the revenues of the largest car maker in Europe for the entire year of 2021is now expected to be much higher than predicted previously. A considerable rise from the 223 billion euros it earned the previous year was previously predicted by Volkswagen. The wordings of the company were such that it signals that the company expected faster growth.
In pre-market activity, the company's shares were expected to start 1.9 per cent down.
"Following a record result in the first half of the year, the semiconductor bottlenecks in the third quarter made it abundantly clear to us that we are not yet resilient enough to fluctuations in capacity utilization," Chief Financial Officer Arno Antlitz said in a statement on Thursday.
"This clearly shows that we must continue to work resolutely on improving our cost structures and productivity in all areas."
The company reported its operating profit for the third quarter at 2.8 billion euros ($3.25 billion), lower by 12 per cent compared to the same period the previous year and was less than the Refinitiv expectation of 2.99 billion euros.
The company also reported a drop in its profit margin for the period of July to September to 4.9 per cent from 5.4 per cent in the same quarter the previous year.
Its operating profit margin target of between 6.0-7.5 per cent for 2021 was reiterated by Volkswagen, which has set a target of surpassing Tesla as the top seller of electric vehicles of the world by the middle of the current decade.
"The results of the third quarter show once again that we must now systematically drive forward the improvement in productivity in the volume sector," Chief Executive Herbert Diess said.
Chip supply will be tough in the fourth quarter, said Porsche AG in a separate statement, the luxury brand of Volkswagen. Reports have said that Volkswagen is considering a potential public listing for Porsche.  

Christopher J. Mitchell

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