Volkswagen Group lowered its 2023 outlook for deliveries amid economic uncertainty and intensifying competition in China.
VW now expects full-year deliveries in a range between 9 million and 9.5 million vehicles, instead of the around 9.5 million units previously forecast.
The company said it would compensate for lower deliveries with higher pricing and efficiency gains in production.
The reduced sales target was because of a dip in first-half sales in China, Chief Financial Officer Arno Antlitz said during an earnings call on Thursday.
VW's second-quarter earnings disappointed analysts. The automaker said it will concentrate on improving net cash flow for the rest of the year
"The focus for the second half is now on strengthening net cash flow," Antlitz said, adding that he expects cost-cutting programs at the automaker's various brands to improve the situation.
Antlitz said he is confident that VW will achieve its operating profit margin range of 7.5 percent to 8.5 percent this year.
"The underlying margin before valuation effect is running even above our full-year margin corridor and demonstrates the robustness of our business model in a challenging environment," he said.
Supplies of key components such as semiconductors have improved but transport and logistics delays weighed on the first half, VW said. It expects significantly shorter waiting times in the second half and said demand was stable with order books full at 1.65 million vehicles.
Worldwide, VW Group delivered 2.3 million vehicles in the period from April to June, 18 percent more than in the same period last year.
Adjusted operating profit was 5.6 billion euros ($6.2 billion) in the second quarter, missing analyst projections. Net cash flow fell more than 71 percent to 226 million euros. VW still aims to hit full-year net cash flow of between 6 billion and 8 billion euros.
The core brands of Volkswagen Passenger Cars, VW Commercial Vehicles, Seat, Skoda and Cupra achieved an operating margin of 5.5 percent in the first half. Audi, Lamborghini, Bentley and Ducati had a 10 percent operating margin.
'Worse to come'
All the group's brands are undergoing cost-cutting programs in a value-over-volume strategy, with Volkswagen Passenger Cars alone promising 10 billion euros ($11.09 billion) in efficiency gains by 2026.
"Competition is intensifying and customers are cautious," Antlitz said, referring to the global autos market. "We need to achieve the first results of these programs in the second half of 2023 to make us more resilient."
VW's lower full-year sales target suggested a likely downshift in the second half, analysts said.
"I see the 9 to 9.5 million deliveries scenario as the best case ... communication should be more conservative. Investors feel the worst is yet to come," Bankhaus Metzler analyst Juergen Pieper said.
VW Group CEO Oliver Blume is trying to turn the tide in China, where Tesla and BYD have raced ahead because they are better at producing electric vehicles with technology and software geared to local tastes.
VW on Wednesday announced plans to invest $700 million in Chinese carmaker Xpeng and jointly develop EVs to bolster its lineup in the world’s biggest auto market. But the benefits of that partnership will take time to materialize — a first joint model will not arrive until 2026.
"VW has partially admitted defeat” on EVs in China, Deutsche Bank analysts led by Tim Rokossa said in a note to clients. The Xpeng deal "could be a real chance for a fresh start."
VW also said on Thursday it had sold its Russian operations for 125 million euros.
VW Group's lower car-sales outlook stands out in what has otherwise been an upbeat earnings season for the industry after Mercedes-Benz raised its guidance and Stellantis and Renault posted better-than-expected margins.
Reuters and Bloomberg contributed to this report