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UPDATE 2-VW's Audi says new models, factories to weigh on profit
March 11, 2014 / 9:46 AM / 4 years ago

UPDATE 2-VW's Audi says new models, factories to weigh on profit

* 2014 op margin within 8-10 pct range vs 10.1 pct in 2013

* 2014 sales to rise above 50 bln euros

* May assemble more cars abroad than in Germany for 1st time

* Mercedes to shrink sales gap to Audi - IHS (Adds company, analyst comments, details, background, shares)

By Andreas Cremer

INGOLSTADT, Germany, March 11 (Reuters) - German luxury carmaker Audi, source of nearly half of Volkswagen’s profits, expects another drop in operating earnings this year as it invests in new models and foreign expansion in a bid to catch up with sales at luxury rival BMW.

Audi has been closing the gap on BMW thanks to models such as the A3 compact and Q5 sport utility vehicle (SUV).

But its product cycle has peaked, just as Europe’s auto market emerges from a six-year sales slump and Daimler’s Mercedes-Benz steps up the battle in the premium car market with a flurry of new vehicles.

That has led some analysts to question whether Volkswagen’s (VW) flagship brand will meet its goal to overtake BMW’s sales by 2020.

Audi said on Tuesday it was planning for the future. It aims to spend a record 22 billion euros ($30.5 billion) on new cars, factories and technology through 2018 - when VW hopes to eclipse Toyota as the world’s largest carmaker.

Audi is spending over 1 billion euros on new facilities in Mexico and Brazil, and may for the first time assemble more cars outside Germany than within its home country in 2014.

“We are making enormous expenditure for future growth,” Audi Chief Executive Rupert Stadler said at a press conference for annual results. “We sow today what we reap tomorrow.”

M.M. Warburg analyst Marc-Rene Tonn said Audi was doing the right thing, despite the impact on profits this year.

“Audi is right to focus on lucrative markets. Costs may be high in the short term but it’ll be a gainful investment,” he said, forecasting a 9 percent fall in 2014 operating profit.

At 1300 GMT, VW shares were up 1.5 percent at 181.5 euros.


Europe’s luxury carmakers avoided the worst of the downturn in their home region, thanks in part to strong demand from emerging markets.

But competition is intense. Research firm IHS Automotive forecasts Mercedes-Benz will close its sales gap on Audi by more than three quarters next year to just 30,225 cars, thanks to strong demand for a spate of redesigned compact cars.

Audi’s operating profit fell 6.2 percent last year to 5.03 billion euros, although it beat the highest estimate of 4.87 billion in a Reuters poll of analysts.

The brand said it aimed to build on last year’s record 1.58 million vehicle sales in 2014, on the way to its target of 2 million deliveries in 2020.

Sales may increase above 50 billion euros from 49.9 billion in 2013, Stadler said.

But Audi said its investment drive meant its operating margin was likely to return to its target range of 8-10 percent from 10.1 percent last year and 11 percent in 2012.

Given the scale of its spending commitments, keeping the operating margin within that range over time was “very, very ambitious,” finance chief Axel Strotbek said.

By comparison, profitability at Mercedes-Benz, which includes the Smart city-car brand, fell to 6.2 percent last year from 7.1 percent, hit by investments to upgrade four plants to produce the C-class sedan.

After opening its second Chinese factory in late 2013, Audi will resume production in Brazil next year to assemble the A3 compact saloon and the Q3 SUV. A new plant in Mexico, Audi’s first in North America, will start making the Q5 SUV in 2016.

Audi said it would pay Germany-based workers a bonus of 6,900 euros each for 2013, compared with 8,030 euros a year earlier, reflecting its lower underlying earnings.

All major carmakers pay workers bonuses every year. The VW brand last month said it would pay its German workforce 6,200 euros each, 1,000 euros less than in 2012.

$1 = 0.7205 euros Editing by Christoph Steitz and Mark Potter

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