VW trims growth estimates as industry slowdown bites

Volkswagen AG lowered some forecasts for next year to reflect weakening demand in big car markets like China as a decade of nearly uninterrupted industry growth grinds to a halt.

Shares in the world’s largest automaker fell as much as 5% on Monday after the company cut its outlook for revenue and operating profit growth over four years to 2020. It kept its profit margin targets.

“We’re facing a declining market environment," Chief Executive Officer Herbert Diess said during a telephone conference with analysts and investors, adding that some regions are poised to deteriorate further next year. “We’re well prepared," he said.

VW’s gloomier outlook sharpens the lines of the industry’s predicament. The German manufacturer last month trimmed its forecast for worldwide deliveries amid cooling economic growth in some markets, trade tensions and Brexit. Then last week it lifted planned spending to record levels on new technology like electric cars and software operations.

Read more: VW Challenges Rivals With $66 Billion for Electric Car Era (1)

Diess said on Monday spending on software and digital operations would be doubled to 14.4 billion euros as part of an allocated 60 billion euros ($66 billion) in investment for future technology over the next five years.

Revised Outlook

• At least 20% sales growth between 2016 and 2020. The previous forecast was for an increase exceeding 25%.
• Operating profit excluding special items forecast to advance at least 25% during the period, less than a previous estimate of more than 30%.
• Company is keeping its operating profit margin targets excluding special items for this year and next, Chief Financial Officer Frank Witter said during the presentation.
• Goal for return on sales for 2021 should be similar to 2020, Witter said, acknowledging reaching the Audi brand’s targeted return to a margin corridor between 9% and 11% “is a stretch."

Audi is the group’s largest profit contributor and last week VW picked Markus Duesmann as new brand chief to accelerate overhaul efforts.