Volkswagen Group said higher material costs to comply with CO2 emissions regulations will significantly increase the price of its cars in the medium-term.
Cheaper cars will proportionately see the biggest price rises, Volkswagen said Friday, with increasing safety requirements an additional burden on costs.
"Volkswagen is using various resources to counteract rising costs," VW head of sales Christian Dahlheim said on a call with reporters. "Nevertheless, it is clear that it will not be possible to completely offset the higher material costs."
The drag on automakers has steadily increased over the past few months, culminating in a number of profit warnings last year. Into this year, trade tensions look likely to persist, while concerns over Brexit are escalating and China’s auto market declined for the first time in two decades last year. Both Ford and Jaguar Land Rover announced thousands of job cuts in Europe Thursday.
On top of these factors, the payoff on the costly shift into electric cars remains years away. Sales remain at a fraction of overall deliveries, and poor charging infrastructure is keeping consumers on the fence to switch to battery cars. Volkswagen sold 100,000 plug-in and battery vehicles last year, less than 1 percent of the total.
"The challenges for our business won’t ease given the geopolitical volatile developments," Dahlheim said in a statement, adding that VW was well positioned to navigate industry turbulence.
A slew of fresh models should help stem the tide of negative factors, VW said, such as the VW T-Cross, Seat Tarraco and revamped Audi Q3 compact SUV. Still, demand in China and Europe,
VW’s two key regions, is forecast to hover around the same level as last year, limiting growth. The U.S. vehicle market might decline slightly, and VW forecast a difficult first quarter in China.
VW proved relatively resilient last year, despite the trade tensions, drop in China and stricter emissions tests in Europe triggering production bottlenecks.
Global deliveries increased by 0.9 percent to 10.8 million vehicles.
The Porsche sports car brand, the group’s most profitable division, improved sales by 4 percent, which partly offset a 3.5 percent decline at larger premium-car unit Audi. The main VW car marque, which accounts for more than half the group’s global deliveries, eked out 0.2 percent growth last year to 6.24 million vehicles. Mass-market sister brands Skoda and Seat also improved results.
Sustaining growth in mass-market cars is set to become more difficult because of stricter emission rules, Dahlheim said. As a result, the company is reviewing its lineup of model and engine variants as rising costs bite, an issue affecting the entire automotive industry, "not just Volkswagen."