+++ In the first quarter of 2017, the AUDI Group achieved a robust operating profit. While revenue remained at the level of the first quarter of last year the earnings figure actually rose slightly compared to the prior-year period which had been negatively influenced by special items. The operating return on sales for the first quarter is 8.7 percent. In the months of January through March, the company delivered 422,603 automobiles of the Audi brand to customers, posting its best-ever first quarter of a year in Western Europe as well as North America. Due to a temporary special situation in China, where the Ingolstadt-based company is currently working with its local partners to define the strategic plan for the next growth phase, worldwide deliveries were 7.3 percent below the number sold in the first quarter of last year (455,869). However, first-quarter revenue of €14,378 million was close to the prior-year figure (€14,511 million). New models such as the Audi Q2 and A5 contributed positively to this development. The operating profit of €1,244 million (Q1 2016: €1,202 million) reflects not only the success of the new models but also higher income from the settlement of currency hedges. On the other hand, there were negative effects from higher depreciation resulting from the expansion of the international production network and of the model and technology portfolio. Unlike in the prior-year period, operating profit in the first quarter of 2017 was not reduced by special items (Q1 2016: €100 million). “With an operating return on sales of 8.7 percent, we are significantly within our target corridor of 8 to 10 percent at the end of a difficult quarter”, stated Axel Strotbek, member of the board for Finance and IT. That metric was 8.3 percent for the first quarter of last year. “We anticipate challenging conditions also in the coming months, but believe we are well prepared for them with our new models and market launches”, continued Strotbek. Furthermore, Audi is systematically increasing its spending discipline and implementing its ‘Speed up!’ program to ensure that it can continue to finance its strategic transformation out of its own cash flows. The Audi Group achieved profit before tax of €1,425 million for the period of January through March, which is an increase of 48.6 percent compared with the prior-year period (Q1 2006: €959 million). The growth primarily reflects a significant increase in financial income. For example, the involvement of new investors in mapping provider Here led to a positive effect of €183 million on income from investments accounted for using the equity method. The net cash inflow in the first quarter increased to €1,517 million (Q1 2016: €1,185 million). This was the result not only of ‘Speed Up!’ but also of lower cash outflows for investments in companies and for capital increases. The company’s forecast for the full year remains unchanged. It aims to achieve slight growth in deliveries of Audi-brand cars as well as revenue compared with 2016. Operating profit is expected to be within the strategic return corridor of 8 to 10 percent of revenue. +++
+++ Two of Volkswagen’s most sporting hardtops, the BEETLE and Scirocco, could be on their way out, according to a VW board member. “The Beetle and Scirocco are representatives of an emotional and appealing class of vehicles, but it is not always about continuing cars from one generation to the next,” board member Arno Antlitz said. The Beetle convertible would continue in production. I expect, however, that both body styles would likely die as their natural product cycles are nearing the end. The current Beetle has been on sale since the 2012 model year. Antlitz’s comments, which came at Volkswagen’s annual corporate meeting, could be troubling for some enthusiasts, but they’re not new. Rumors of the Beetle’s demise have swirled for years. Volkswagen has come under pressure to cut costs in the wake of the Dieselgate scandal and is placing greater emphasis on its electric vehicle programs and SUVs, like the Tiguan Allspace, which could make halo products like the Beetle and Scirocco less critical. I expect the Beetle could die around 2019, which is when the Arteon upscale sedan is expected to have its first full salesyear. +++
+++ The DIESEL slide could torpedo European auto sales recovery. Fall in residual values is hurting finance companies. The after-effects of Volkswagen’s Dieselgate scandal continue to ripple through the global automotive sector and, if analysts are correct, the next victim could be the European auto finance industry. The drop in diesel demand in Europe’s larger auto markets is starting to have an impact on vehicle residual values, which is in turn affecting financing rates on new lease plans and not, Reuters reports, just for diesels. “It’s a big potential problem if that carries on because it reduces the affordability of vehicles potentially quite significantly”, Exane BNP Paribas analyst Stuart Pearson told the wire service, going on to say that residual values for diesel cars in the United States have dropped as much as 20% in the wake of the scandal. In Europe, where diesels represent a much larger share of new-vehicle sales, the bleed-over could end up being far worse. Volkswagen’s finance arm was far more profitable than the Group as a whole last year; BMW and Daimler have similar stories to tell. The situation bears echoes of the U.S. auto industry in the pre-bailout years, when captive financing arms were buoying automakers only flirting with operational profitability, though without the added specter of legacy labor costs lingering in the background. +++
+++ HYUNDAI is considering whether it can continue with 2 medium-sized sedans in its range, with the newer US-focused Sonata taking precedence over the ageing European-developed i40 that continues without a replacement in sight. Hyundai Motor Europe (HME) chief designer Thomas Burkle admitted that the medium class (or what is known as the D-segment overseas) is tougher than ever, especially in the face of a global SUV boom. “The D-segment was always difficult”, Burkle told. “There will always be customers in the D-segment I’m sure … but the market is changing. Society is changing and we have to be synchronised as a society”. He explained that while volume has contracted in the medium class, to such a degree, he opined, that “you can see the luxury brands, Mercedes, Audi, BMW, how much they move to the compact segments”; different market requirements between the US and Europe make it a challenge to produce only a single model. “We have to look to the future for the next-generation of D-segment car”, Burkle stated. “The market in America is quite different from Europe. For example, Sonata is still a price-sensitive product in America and in Europe you have more of the station wagons in the D-segment. I think the i40 was an attempt to go into the D-segment with a station wagon and it is still a statement this car. What exactly fits to each market, and if we can afford to have 2 models or not, this will be answered also (and) if we can fill with 1 car the different market demands”. Asked whether the SUV boom meant there was a chance Hyundai could end up not replacing the i40, which is a slow seller in Europe, and focus on the Sonata, which sells well in the US, Burkle replied: “I think we are one of the biggest car manufacturers in the world and we need a whole line-up. We cannot just ignore certain cars”, he insisted. “I think when you look at other companies they chopped the D-segment but it was not successful in the end, you have to have the bandwidth to offer it to the customer”. As to why the 7-year old i40 has no replacement in sight, Burkle offered: “Lately we did the facelift of the i40, that was quite a big one and we changed even the headlamps and the whole front so this was quite an investment and of course we are looking at the return on the investment. We cannot change all the time, and a quality product needs time to develop like a good wine”, he said. “We don’t just want to throw things into the market, we are serious, we have to trust our products. This takes long development times, so we cannot shoot in all directions”. +++
+++ The boss of JAGUAR LAND ROVER defends diesel. Ralf Speth stresses it’s important to continue investing in diesel technology. The diesel engine has been on lawmakers’ hit list since news of Volkswagen’s far-reaching emissions cover-up fiasco made headlines in 2015. Many companies have vowed to phase out diesel-powered cars, but Jaguar Land Rover (JLR) remains firmly committed to the technology. Company boss Speth recently explained JLR’s position: “The latest diesel technology is really such a step in emissions, performance, particulates; it’s better for the environment when compared to an equivalent petrol. Diesel has to (needs to) have a future”, he told. Jaguar is one of the numerous companies investing in electric technology. The company is working on turning the I-Pace concept into a production model before the end of the decade. Speth believes electrification is the future, but he warns the shift away from the internal combustion engine won’t happen overnight. It will be a gradual process, and diesel technology is the best way to lower emissions until electric cars become more mainstream. Additionally, Speth doesn’t agree with decision-makers on both sides of the pond who have worked overtime to make the diesel engine public enemy number one. He says the technology’s bad reputation is unjustified, and he clearly blames Volkswagen for it. “This kind of manipulation software is not acceptable”, he said, referring to the so-called illegal defeat device discovered in Volkswagen, Audi, and Porsche engines. “Unfortunately, the whole automotive industry suffers, not just Volkswagen. Nobody believes the automotive industry anymore. They see us as offenders and not giving the right information”, he added. +++
+++ TESLA reported first-quarter revenue that more than doubled, and while saying the upcoming Model 3 was on schedule for July, it downplayed the mass-market vehicle to give a sales pitch for its more expensive Model S. Chief Executive Elon Musk’s bold approach to cars, space exploration and clean energy has fueled investor enthusiasm for Tesla. But skeptics are waiting to see if Musk can fulfill his promise of producing 500,000 cars per year in 2018, or six times Tesla’s 2016 production. The automaker’s comments underscored the additional challenge of keeping up demand for its older models. “We have seen some impact of Model S orders as a function of people being confused” that Model 3 is the upgrade to Model S, Musk said on a conference call. Tesla said it had $4 billion of cash on hand as it headed into the second quarter and expects year-to-date capital expenditures to be slightly over $2 billion by the time it starts Model 3 production, within its previous targeted range of $2 billion to $2.5 billion. That cushion should give the company some near-term breathing room from needing to tap Wall Street for cash, said CFRA Research analyst Efraim Levy. Tesla in March raised $1.2 billion from the markets. Record deliveries helped Tesla boost its revenue to $2.7 billion in the quarter, but a net loss net widened to $330.3 million from $282.3 million a year earlier, largely driven by its SolarCity acquisition. Tesla has much riding on the Model 3, which could finally make the cash-hemorrhaging automaker profitable. But while much of the company hype has focused on the car due in July, Tesla made a sales pitch for its overshadowed Model S. Tesla is anxious that the $35,000 Model 3 (which will likely not be delivered in volume until 2018) avoids cannibalizing the higher-margin Model S, which lists at about double the starting price. In its earnings release, Tesla stated that a key challenge for the company would be to eliminate misperceptions about the differences between the Model S and the Model 3. “We want to be super clear that Model 3 is not version three of our car. Model 3 is essentially a smaller, more affordable version of the Model S with fewer features”, Musk said on a conference call, adding buyers erroneously thought the Model 3 would be more advanced. “The Model S will be better than Model 3”, he added. “As it should be, as it’s a more expensive car”. Tesla needs to ramp up for a deluge of Model 3 customers, and the company said it would be adding nearly 100 retail, delivery and service locations worldwide, representing a 30 percent increase. Tesla also said it was also working to improve efficiency, citing vehicle repair times that have fallen by 35 percent due to the use of remote diagnostics. The company reiterated its forecast of delivering 47,000-50,000 Model S and Model X cars in the first half of 2017, a target it announced earlier this year. Still, customer deposits fell 7 percent in the quarter, which could suggest interest in Tesla’s current product line, the Model S and Model X, is decreasing. +++
+++ There were times when the driver was master and commander: of the road and of the infotainment system as well, but those are long gone. Now you can share a ride with someone, lend your car to complete strangers to make money and even allow passengers to trash your mood as they set the tunes. VOLKSWAGEN is trying to revolutionize or destroy the classic tradition of road tripping via its new Media Control app. This connected application, which is available on smartphones and tablets running Apple and Android systems (which is basically everything) allows anyone present in the car to argue which music should play thanks to the WLAN connection. The new Media Control app will be useful if you have a VW packing the Discover Navigation or Discover Navigation Pro infotainment systems, allowing anyone to connect and remotely manipulate everything, from radio stations, adjusting volume, playing tracks from connected devices to pumping up the beat. And yes, fortunately the driver still has a measure of power: he can disconnect the WLAN at any time. The Media Control also allows the connected passengers to make phone calls through the on-board speakers and microphone. The navigation system is also accessible, allowing users to enter new destinations, for example. Volkswagen has also announced unrelated updates for some of its models, including bigger infotainment screens, new exterior color options and a host of enhancements for the Golf. +++
+++ No one knew how it would work out when Ford sold Swedish automaker VOLVO to China’s Geely in 2010. Geely was willing to invest major money for Volvo to completely redesign its vehicle platforms, powertrains, and processes to replace the Ford equipment it had used for the previous decade, but plenty of historic brands have deep-pocketed patrons backing them up. It was similar to Volvo’s last sale in 1999, when industry experts were divided as Ford purchased Volvo to fill out its former Premium Automotive Group, which also included Jaguar, Land Rover, Aston Martin, Lincoln, and Mercury. Volvo’s prospects darkened when the global economy and auto sales collapsed in 2008-2009. Its US sales slumped from a Ford-era peak of just under 140,000 in 2004 to 54,000 in 2010. Driven by new technology and products, sales began to rebound as Volvo’s old four-, five-, and six-cylinder engines were replaced by a new family of fuel-efficient Drive-E 2.0-liter turbocharged fours. Some were also supercharged and some teamed with electric motors in hybrid models. Then came the 2016 XC90 three-row SUV, which earned multiple awards. Volvo’s new products garnered strong media reviews, and the company sold more than 500,000 vehicles globally for the first time in 2015, up 24 percent in the US market, 10 percent in Europe, and 11.5 percent in China. That was followed up by more than 534,000 sales in 2016. Though its US division topped 82,700, it fell far short of key competitors and still wasn’t back to its height under Ford ownership. This year, it’s been a slow start, with XC90 deliveries sagging 36.3 percent through April, and the beautiful S90 has not sold well. Company sales are down 8.6 percent in the American market so far this year, though April saw a 15.4-percent uptick. Are the gains made in recent years slipping away? Can Volvo ever truly compete with German, Japanese, and US luxury brands? Or will it continue to trail in perception and sales? “I think we made such a step upward with the XC90 that we are on par with the premium competition”, Volvo’s North American CEO Lex Kerssemakers says. “The XC60 is exactly the same. Our philosophy a few years ago was to be on par with them, and now our recently introduced vehicles are on par with them from a luxury perspective. Are we there from an awareness perspective? No, not yet. We know that will take a while”. Kerssemakers attributes the early 2017 XC90 slump to low US supply since it has now been launched worldwide and disappointing S90 sales to the shrinking but still highly competitive luxury sedan segment. Its appeal might strengthen, however, when the China-built stretched 2018 model with limo-like rear seats arrives. Big sales from the lovely V90, or its mildly off-road-capable Cross Country variant are not expected, but the next-gen midsize XC60 and soon-to-come compact XC40 could prove to be robust sellers. “We have spent $11 billion on the product-driven turnaround we started in 2010”, Kerssemakers says, “on products, platforms, powertrains, processes, and 2 new factories in China and one in the United States. At the end of this year, we will introduce the XC40, so we will have 3 highly modern SUVs by early next year. That is a very good starting point in a booming SUV market”. Still, the company is thinking long-term. Inevitably, its attractive crossovers should perform better in the US market, where Volvo is strengthening its footprint with a new South Carolina plant. That site will build mid-range S60 sedans for global distribution beginning in the fall of 2018, and a second variant yet to be announced. Volvo also has an assembly plant near its Gothenburg, Sweden, headquarters and another in Belgium. As it waits for the sales to return, the company continues to focus on its historic calling card (safety) while embracing emerging technologies. “No one should be killed or seriously injured in a Volvo by 2020, and autonomous drive will be a central ingredient of that”, Kerssemakers says. “We are working very hard on autonomous, and when we decided to go to four-cylinder turbo engines, one big ingredient of that was electrification. We have a long journey to go, but we strongly believe in electrification, both hybrids and fully electric vehicles. We will launch a full electric car in 2019, and we want a million electrified Volvo cars on the roads by 2025”. It’s an ambitious plan, which Volvo will need to deliver upon if it is to follow up on its sales success of the last few years. Only then can it feel secure that its comeback is secure. +++