Volkswagen posts drop in quarterly profit, says it must speed up to catch Chinese EV market rivals

German giant Volkswagen on Thursday reported a drop in first-quarter profit, saying weaker sales in China reaffirms the need for the carmaker to close the gap on its rivals in the country’s fast-growing electric vehicle market.

Volkswagen said operating profit fell 31% to 5.7 billion euros ($6.3 billion) through the first three months of 2023, down from 8.3 billion euros over the same period last year.

Europe’s biggest carmaker said operating profit before valuation effects from commodity hedging, however, increased by 35% to 7.1 billion euros.

First-quarter sales revenue rose by 22% to 76 billion euros, Volkswagen said, primarily driven by a recovery in sales volumes in Europe and North America.

“We had indeed a really encouraging start into the year 2023, with both revenues and underlying operating profit improving significantly,” Volkswagen Chief Financial Officer Arno Antlitz told CNBC’s Annette Weisbach on Thursday.

“As you remember when we released our targets for 2023, they were quite ambitious, we got this feedback, but based on that very solid first quarter and based on an order backlog of 1.8 million cars in Europe, we are quite confident that we will achieve all our financial targets for 2023.”

Shares of Volkswagen were marginally higher on Thursday morning. The stock price is up roughly 5.5% year-to-date.

Volkswagen said deliveries in China slipped 14.5% through the first three months of 2023 but it remains confident sales will recover through the remainder of the year, citing an expanded model range and China-specific technology.

Asked about the sliding first-quarter sales in China, Volkswagen’s replied Antlitz, “We had a slow start in China.”

He added it was important to distinguish between China’s combustion engine market, where Volkswagen has long been a leader, and the country’s battery electric vehicle (BEV) market, where it wants to catch up with rivals including Chinese EV giant BYD.

“I just came back from Shanghai, I spent there three days having a look at competitor cars, talking to the teams on the ground and it’s obvious we need to speed up, specially on the BEV side,” Antlitz said.

“I’m confident that we will play a major role in China also in the future,” he added.