Volkswagen Misses Full-Year Cash Target After Supply Chain Woes

Monica Raymunt, Bloomberg News

Employee conducts quality control checks on a Volkswagen AG (VW) ID.5 electric sports utility vehicle (eSUV) on the assembly line at the automaker's electric automobile plant in Zwickau, Germany, on Tuesday, April 26, 2022. The Zwickau assembly lines are the centerpiece of a plan by VW, the world's biggest automaker, to manufacture as many as 330,000 cars annually. , Bloomberg

(Bloomberg) -- Volkswagen AG missed its cash-flow target for the year after supply-chain and logistics disruptions in recent months left the carmaker with unsold vehicles.

The German automaker reported preliminary cash flow of around €5 billion ($5.36 billion) for 2022, falling well below its target of around €8.6 billion, according to a preliminary earnings statement late Tuesday.

VW’s report echoes those of other carmakers that have seen unsold finished goods and raw materials piling up. Stellantis NV said in November that freight problems across the automotive industry such as railcar, truck and driver shortages, and ship availability were making it hard to get cars to dealers.

VW expects the logistics problems to ease this year. Shares declined as much as 2.7% in early trading before paring losses.

“VW is not alone in facing logistics challenges related to getting finished inventories to dealers at year end,” RBC analyst Tom Narayan wrote in a note. “Our channel checks suggest this was a common issue” among European carmakers.

Still, the missed cash target is a blow to Chief Executive Officer Oliver Blume, who took over from ousted CEO Herbert Diess in September with goals including improvements to planning after VW was worse hit than many peers by the severe semiconductor shortages.

There are also growing signs of a slowdown in consumer demand increasingly squeezed by record inflation and slowing economies. Tesla Inc. and Ford Motor Co. have significantly cut prices, while Robert Bosch GmbH, the world’s biggest auto supplier, said auto output won’t reach pre-pandemic levels this year.

Due to long-standing supply-chain issues for semiconductors and other car parts, VW still has full order books in Europe that will support sales through the first half of the year, the Chief Financial Officer Arno Antlitz said in a December interview. But it’s also becoming more difficult for carmakers to pass on the costs of higher input prices.

The company said 2022 revenue and profit were in line with its most recent guidance. Sales came in at €279 billion, while operating profit before special items totaled €22.5 billion.

What Bloomberg Intelligence Says:

Volkswagen’s preliminary 2022 Ebit margin was modestly below expectations at 8.1% and concern over weak unadjusted free cash of €5 billion — below the €8.6 billion guidance — is mitigated by high inventory levels that are likely to be an industry theme for 4Q but should reverse in 1H. Net industrial cash ended 2022 at a strong €43 billion — before January’s €9.5 billion special dividend but after the Porsche IPO. The release of 2023 Ebit margin guidance on March 14 is key.

— Michael Dean, BI automotive analyst

Volkswagen will release full-year earnings and publish its annual report on March 14.

--With assistance from William Wilkes.

(Updates with shares in fourth paragraph)