BERLIN (Reuters) - Volkswagen (DE:VOWG_p) raised its mid-term outlook for group profit and sales on Monday, sustaining investor hopes that the carmaker can further its recovery despite shouldering billions of costs for its electric-car offensive.
The world's largest automaker by sales announced on Friday more than 34 billion euros (£30.2 billion) of spending on zero-emission cars and digital mobility services by the end of 2022, revising up an investment pledge for more than 20 billion euros made in September.
On Monday, VW said rebounding emerging markets such as Brazil and Russia and demand for new VW-badged sport-utility vehicles (SUVs) may together lead group revenue to exceed the 2016 record of 217 billion euros by more than a quarter by 2020.
Eight months ago, the carmaker had guided for that benchmark to beat the 2016 result by more than a fifth.
Similarly, it said 2020 operating profit (EBIT) could rise by 25 percent or more from the 7.1 billion euros reached in 2016 even as investments in electric cars and enhanced combustion-engine technology keep growing, VW said. That was a slight upward revision from the straight 25-percent gain it had predicted in March.
"Cost discipline, productivity improvements and execution of one-time product launches are certainly vital to reach our goals," finance chief Frank Witter said on a call with analysts.
Analysts welcomed the revisions as well as VW's first-ever publication of a free cash flow target, both as signs of transparency and the carmaker's financial health. VW expects net cash flow to grow to 10 billion euros or more by 2020 from 4.3 billion last year.
"It is increasingly hard for investors to ignore the impressive turnaround of VW," said Evercore ISI analyst Arndt Ellinghorst who kept his "Outperform" rating on the stock but lifted the target price to 210 euros from 190 euros.
VW shares were trading up 4.3 percent at 165.5 euros at 1335 GMT, the biggest gainer in Germany's benchmark DAX (GDAXI) index.
Still, analysts have said VW may incur problems with tightening emissions rules in Europe, China and other regions as it pushes to launch more than 45 SUVs which typically consume more fuel than ordinary passenger cars.
Earlier this month, the European Union's executive arm called for a 30-percent cut in the average CO2 emission of carmakers' fleets by 2030 compared with 2021 levels.
If they are found in breach of new rules, carmakers face potential fines in the millions of euros, with penalties set at 95 euros for every gram of CO2 above the limit and for each new vehicle registered in that year.
"Achieving compliance with CO2 (carbon dioxide) terms has not become easier, it's actually quite the opposite," CFO Witter said.