How the Volkswagen Group triumphed in a tough year

A good way of measuring the success of the Volkswagen Group’s financial year is via CEO Herbert Diess’s performance-related bonus. In 2021, he took home an extra €5.29 million (£4.4m) to bring his annual total to €8.6m (£7.1m), according to official figures. Why were Diess and his fellow board members so well rewarded in a troubling year for the automotive industry? Because the German group made profits of €20 billion (£16.6bn) on sales of 8.6 million cars. That’s compared with €19.3bn (£16.1bn) on 11 million in 2019. Put another way, the Group’s €2325 (£1945) profit per car last year was up €571 (£478) on a year when there was no Covid disruption nor a global semiconductor shortage. As we’ve seen across the industry, however, the chip crisis actually contributed to the bumper profits. “Vehicle sales across the group declined 6.3%, yet we were able to increase revenues 12% to €250bn (£208bn) as we allocated more chips to higher-margin models and reduced sales incentives,” Diess told financial analysts on an earnings call. For Autocar Business webinars and podcasts, visit Autocar Business Insight Higher-margin equals more profits, so production of the relatively budget Volkswagen Golf dropped a whopping 35% while those factories operated by the Group’s premium brands were running at full tilt. For example, Lamborghini broke out its financial results for the first time to show a 20% profit margin on record sales of 8405 cars. The same went for Bentley, which managed a 14% margin with record sales of 14,594 cars. Both brands capitalised on demand for their related SUVs, the Lamborghini Urus and Bentley Bentayga, which were by far their best-selling models. Audi meanwhile posted a healthy €5.5bn (£4.6bn) profit on one million sales – nearly double 2020’s figure, despite a slight drop in sales, led by the Audi Q5 SUV. Audi said the bumper year was “mainly attributable to a significant improved pricing”, meaning it discounted less and focused on higher-priced models. Porsche came dramatically close to Audi on profits of €5bn (£4.1bn), despite posting fewer than a third of its sibling brand's sales, at just under 300,000. This meant Porsche’s revenue per car sold just pushed over €100,000 (£83,442), of which €17,000 (£14,183) was profit. The Porsche Cayenne was once again the brand’s most produced car, followed by the Porsche Porsche Macan. It wasn’t all good news for the Group, though. Seat once again failed to post a profit, despite the revenue boost from the higher-priced Cupra models. Volkswagen said the Spanish company's performance had been “appreciably weakened by commodity price increases and the shortage of semiconductors”. The profit boost didn’t just come from higher prices (or fewer discounts) on the more expensive models it prioritised. It also gained measurably from the high price of used cars, notably through those owned by its leasing arm, Volkswagen Financial Services (VWFS). Cars it had figured being worth one price when they came back were suddenly commanding much higher prices as the shortages of new cars bumped up the value of used cars. That had VWFS profits more than double in the year to just under €6bn (£4.9bn), “primarily due to the high demand for used vehicles and considerably lower risk costs for credit risk and residual value risk,” Volkswagen said in its annual report. However, analysts are lukewarm about the ongoing ability of the Volkswagen Group to maintain this level of profitability. The €9bn (£7.5bn) boost to profits from car sales was “mostly driven by external factors” outside of its control, wrote Philippe Houchois, analyst at investment bank Jefferies, in a note to investors. Houchois warned that the “fixed and variable cost drift had resumed after 2020’s hiatus”, drawing attention to Volkswagen's long-flagged inability to properly get to grips with its high cost base. The warning was that this ‘annus mirabilis’ could end up being a one-off as the chip crisis eases. For example, the €1.9bn (£1.5bn) hit from rising raw material and production costs is likely to go up as production numbers increase. The Volkswagen Group, along with the rest of the car industry, had best use this year’s windfall profits wisely. How the Volkswagen Group brands fared in 2021 Brand Total Sales Total Profit Margin VW Passenger Cars 2.7m €2.5bn (£2.0bn) 3.3% Skoda 784k €1.1bn (£901m) 6.1% Seat and Cupra 494k €233m (£194m) -2.4% VW Commercial Vehicles 326k €73k (£61k) 0.7% Audi 1.0m €5.5bn (4.5bn) 10.5% Bentley 14.6k €389m (£324m) 13.7% Lamborghini 8.4k €393m (£327m) 20.2% Ducati 59.4k €61m (£51m) 7.0% Porsche 297k €5bn (£4.1bn) 16.5%