VW increases sales, but profit margin in trouble image

While this week the German group is set to report new record first quarter earnings, it’s actually looking like analysts are not as confident on the profitability margins, which could spell trouble in the long run.

Volkswagen said its sales for the first three months of the year increased by 6%, which could mean the group is on its way of achieving the proposed 10 million vehicles per year in 2014, four years earlier than the official goal.

“Cost pressures keep growing and the namesake brand is VW’s biggest trouble spot,” said London-based analyst Arndt Ellinghorst at brokerage ISI Group.

This reflects some analyst concern that VW Ag is not able to keep up with its rapid expansion – with the group struggling to raise both production output and profitability margins.

Volkswagen AG’s financial outcome for 2013 showed the German company having an astonishing revenue of 200 billion euros ($276.6 billion), an increase of 25% over three years, but yearly operating profit only went up by 3.5 % to 11.7 billion.

This is mainly due to increased investments, development spending and higher labor costs: since 2010 the automaker’s worldwide workforce went up by 40% to 573,000 people last year, with high paid Germany workers also receiving a 5.6 % pay raise in 2013.

Via Automotive News Europe