Volkswagen's Q2 profits see a setback due to semiconductor shortage

German carmaker Volkswagen recently said that it was in a serious mess due to the ongoing shortage of semiconductors. Volkswagen CEO Herbert Diess said that the impact of this shortage would intensify and hit profits in the second quarter, according to a report by news agency Reuters.

The company saw a five-fold increase in its operating profits in the first three months of the year. However, the CEO added that the chip crisis would hit their June earnings substantially.

The shortage is a result of the ongoing pandemic and fire at key automotive chipmaker Renesas Electronics Corp in Japan. Earlier this year snow storms in Texas made the situation even worse as local chipmakers such as Samsung Electronics, Infineon and NXP Semiconductors took the blow. "We will do everything to offset a significant amount of the lost cars in the second half of the year," said Diess.

He also added that while this has cut production by around 100,000 cars in the first quarter, more was about to come. The company’s shares were down 2.8%. The CEO said that to secure chip supplies in the longer term, the carmaker is currently in talks with NXP Semiconductors, Infineon as well as foundries such as Taiwan Semiconductor Manufacturing Co.

However, keeping aside the consequences of the chip crisis Volkswagen raised its operating margin target as demands for Audis and Porsches rose in the first quarter this year. The brand also expects a boost in the operating profit margin by 5.5-7%, than the previous forecast of 5.0-6.5%. The sales of electric vehicles also more than doubled to 133,300 vehicles. The carmaker’s operating profit came in at 4.8 billion euros ($5.8 billion) in January-March, supported by cost cuts and higher sales, compared to 900 million euros in the same period last year.