In a preliminary report on its 2017 financial results, German auto giant Volkswagen AG (OTC:VWAGY) said that its operating profit before special items rose 16.5% in 2017, to 17.04 billion euros ($20.95 billion), on cost improvements and a 4.3% increase in worldwide vehicle deliveries.

Volkswagen will release its complete financial results for the fourth quarter and full year on March 13.

A close-up of the "VW" sign at the top of Volkswagen's headquarters building in Wolfsburg, Germany

Image source: Volkswagen AG.

The raw numbers

Metric 2017 2016 Change
Revenue 230.68 billion 217.27 billion 6.2%
Vehicles delivered 10.741 million 10.297 million 4.3%
Operating profit, excluding special items 17.04 billion 14.62 billion 16.5%
Operating profit margin, excluding special items 7.4% 6.7% 0.7 ppts
Special items 3.22 billion 7.52 billion (57.1%)
Net income 11.64 billion 5.38 billion 116%

Data source: Volkswagen AG. All financial results are shown in euros; as of Feb. 23, 2018, 1 euro = about $1.23. "Ppts" = percentage points.

The nutshell summary: Why VW's profit jumped

Simply put, VW was firing on all cylinders in 2017, and while costs related to its diesel-emissions scandal weighed once again, the total impact of scandal-related costs was much smaller than it had been in 2015 and 2016.

For starters, VW's sales have more than recovered from the slump it saw in the months following the initial scandal reports. VW delivered more vehicles -- 10.7 million -- in 2017 than ever before. That sales gain, along with improvements in product "mix" and a healthy result from its financial-services unit, helped drive the 6.2% year-over-year increase in revenue. The mix improvements, along with an ongoing global cost-reduction campaign, also helped boost VW's operating margin (excluding special items) to 7.4% from 6.7% a year ago.

While improved, VW's operating margin still fell short of its best-performing global peers: General Motors' (NYSE:GM) margin for 2017 was 8.8% on a similar basis, and Toyota's (NYSE:TM) was 8.1% in the three quarters ended Dec. 31, 2017, the first three quarters of its fiscal 2018. VW did outperform Ford Motor Company (NYSE:F), which was hampered by cost increases in 2017 and reported an operating margin of just 5% for its core automotive business.

Special items and net liquidity

VW took one-time charges of 3.22 billion euros in 2017, nearly all related to the ongoing fallout from its diesel-emissions scandal in the United States and elsewhere. That sounds like a lot of money, and it is -- but it's down substantially from the 7.52 billion euros in diesel-related special items that the company had to take in 2016.

VW's net liquidity was 22.37 billion euros as of Dec. 31, 2017, down from 27.18 billion euros at the end of 2016, on those diesel-related costs.

What VW's CFO said about its 2017 results

VW's chief financial officer, Frank Witter, said that as the company begins its transition from internal-combustion engines to electric drivetrains, the company's good result in 2017 and still-large cash reserve should boost confidence:

The financial statements presented show that our operating business is strong and the Group's financial situation robust. ... Nearly 11 million customers worldwide -- more than ever before -- opted for a vehicle from one of our brands last year. We are very thankful for this confidence. All the same, we must not relax our efforts because huge challenges lie ahead. Shaping the Group's transformation will not only require a great deal of time and energy; it will also be very expensive. This is why we must continue to keep our expenditure under tight control and advance the necessary innovations at the same time.

Looking ahead: Cautious guidance for 2018

VW's guidance for the year ahead was cautiously upbeat. While the company expects the pace of global economic growth to slow somewhat in 2018 versus 2017, it expects a "moderate" increase in its vehicle deliveries, a 5% increase in revenue, and an operating profit margin between 6.5% and 7.5% for the full year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.