By Victoria Waldersee and Miranda Murray
BERLIN (Reuters) -Volkswagen on Thursday cut its full year sales target and pledged to improve its cash position in the second half by hiking prices and cutting costs as the German carmaker seeks to fend off tough competition in China, its top market.
The reduced sales target of 9-9.5 million vehicles, from 9.5 million previously, was down to a dip in first-half sales in China, Chief Financial Officer Arno Antlitz said.
Antlitz said the so-called "performance programmes" in the works to make the group's brands more efficient would have to begin yielding results this year, adding it had no time to lose in the face of rising competition.
Its next Capital Markets Day in April 2024 will focus on its strategy in China, where Volkswagen (ETR:VOWG_p) still hopes to be the number one international carmaker, though its electric vehicle (EV) sales for now lag local EV makers and U.S. rival Tesla.
"Competition is intensifying and customers are cautious," Antlitz said on a press call following half-year results, referring to the global autos market. "We need to achieve the first results of these programmes in the second half of 2023 to make us more resilient."
The company's shares were down 3.3% at 1115 GMT.
Despite lowering its deliveries target, Volkswagen kept its 2023 financial guidance unchanged. But that contrasts with recent increases at several rivals, which Royal Bank of Canada analysts said suggested a likely downshift in the second half.
"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.
Volkswagen is in the midst of a strategy shift aimed at proving to investors it can protect market share in the transition to electrification.
Still, its mass-market business in particular is struggling to boost margins, lagging competitors like Renault (EPA:RENA) and Stellantis despite the German group's pledge to put profits over volume.
Higher prices and revenues from internal combustion engine cars should help cushion its finances in the second half, Antlitz said.
CASH FLOW
Supplies of key components such as semiconductors had improved but transport and logistics delays had weighed on the first half, Volkswagen said.
"We are now moving from a bottleneck in chips to a bottleneck in transport," said Antlitz, adding steps had been taken to eliminate the hold-ups and reduce waiting time.
"The focus for the second half is now on strengthening net cash flow," he said.
Cash flow, which plunged over 71% in the second quarter to 226 million euros, would improve over time as inventories go down, he said, sticking to the lower end of the firm's full-year cash flow target of 6-8 billion euros ($6.7-8.9 billion).
The core Volkswagen Passenger Cars, VW Commercial Vehicles, Seat, Skoda and Cupra brands achieved an operating margin of 5.5% in the first half.
Audi, Lamborghini, Bentley and Ducati made a 10% operating margin.
Volkswagen also said it had sold its Russian operations for 125 million euros.
In May, the company said it had sold its shares in Volkswagen Group Rus to Art-Finance, which is supported by autodealer group Avilon. The deal included VW's Kaluga factory, which has annual production capacity of 225,000 vehicles.
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