VW directs the impact of new pollutant regulations on car sales

FRANKFURT (Reuters) – Volkswagen (VOWG_p.DE) released forecast-beating third-quarter profit, weather a storm of lower car sales, higher spending and new pollution rules that rival Daimler (DAIGn.DE) and BMW (BMWG.DE).

Workers clean the facade of a dealership under a Volkswagen logo on Chinese National Day in Beijing, China on October 1, 2018. REUTERS / Stringer

Automakers around the world are struggling to increase spending on electric and self-driving vehicles, while at the same time investing heavily in overhauling internal combustion engines to meet more stringent emissions standards.

In terms of cost, VW also signaled alliances in the fields of batteries and autonomous driving, even with specialist competitors such as Waymo (GOOGL.O).

Adjusted operating income for the three months to the end of September was 3.51 billion euros (-18.6 percent), but better than the 3.21 billion euros predicted in a Reuters survey of banks and brokerage houses.

The VW share gained more than 4 percent as the cost savings offset the decline in vehicle sales.

Weaker sales at Audi and the core brand VW, caused by problems in adapting the car manufacturer's model range to new environmental regulations and quality issues at Bentley, were partially offset by higher results at Porsche.

"VW has had a solid quarter despite the sector and self-inflicted disruptions," analysts at Evercore ISI said Tuesday.

VW has struggled to adapt to the globally harmonized test procedure for light commercial vehicles, known as WLTP, which came into force last month, leading to a 3.6 percent drop in deliveries as some car models were unavailable.

The company has been at the center of industry turmoil since the approval of diesel emission tests three years ago.

The following scandal has cost the leading German automaker more than 27 billion euros and rewritten rules to force companies to produce cleaner vehicles.


VW has reaffirmed its target for the operating return on sales in 2018 before special items in the Group and in the passenger car segment of 6.5 to 7.5 percent.

Including special items such as a fine of 800 million euros against Audi's premium Audi brand, the adjusted operating margin will be moderately below the expected range.

"Since VW does not have to change its forecast, it looks more robust than most of its competitors, Daimler (DAIGn.DE) and BMW (BMWG.DE), it shows the talents of VW on both the product and the cost side, "said Metzler analyst Jürgen Pieper.

Despite the new WLTP rules, VW expects new vehicle sales to increase moderately this year, with 10.74 million vehicles delivered to customers in 2017.


VW will try to reduce its investment and increase efficiency by linking its brands more closely, giving Bentley access to the electric vehicle technology developed by Audi and Porsche.

VW wanted to develop autonomous cars internally, but the automaker signaled a new openness to the development of the technology with an external partner to reduce the cost of research and development.

"We want to have access to a self-driving system and talk to relevant stakeholders, it's very expensive to develop and others are already well advanced, Waymo is one of them."

CFO Frank Witter said in a conference call with journalists.

VW is also open to working with external companies in the production of battery cells and could be open to sharing its electric vehicle platform MEB with rival Ford (F.N), Witter said, adding that no formal decision was made.

"We want to open up much more for cooperation," he said, adding that currently the main task of electric car technology is to extend it to the VW group, which includes Skoda and Seat.

This year, the Group will spend 19.8 billion euros for the development of conventional vehicles and engines and invest only 6.6 billion euros for electric cars, digital services and autonomous driving.

($ 1 = 0.8794 €)

Reporting by Edward Taylor and Jan Schwartz; Editing by Maria Sheahan / Keith Weir

Our standards:The Thomson Reuters Trust Principles.