German automaker Volkswagen (VWAGY 1.90%) reported better-than-expected first-quarter earnings and strong sales of its electrified vehicles, but said that it expects the ongoing global shortage of automotive semiconductors to get worse before it gets better.

VW's net income of 3.4 billion euros ($4.1 billion) was a huge improvement from the 517 million euros it earned in the first quarter of 2020, when its sales and manufacturing were hampered by the onset of the COVID-19 pandemic. VW also beat estimates: Its operating profit of 4.8 billion euros ($5.76 billion) was well ahead of the 4.3 billion-euro average estimate from Wall Street analysts surveyed by FactSet.

VW ID.4 and ID.3 electric vehicles are shown rolling out of a German factory.

VW began production of its ID.4 electric SUV in Germany and China during the first quarter. Image source: Volkswagen AG.

Highlights from Volkswagen's first-quarter report

  • Overall deliveries increased by 21% from a year ago to 2.4 million vehicles, largely driven by a recovery in China. Sales also grew in North and South America, and in Central and Eastern Europe, the company said. 
  • Sales of electrified vehicles, including hybrids and battery-electric models, more than doubled to about 133,000 units. Of those, about 59,900 were battery-electric vehicles. 
  • VW began production of the ID.4 electric crossover, its first global electric model, in Germany and China during the quarter. Two more plants, VW's factory in Chattanooga and a second German factory, will begin building the ID.4 next year. 
  • Volkswagen's operating margin, a widely watched figure, rose to 7.7% from 1.6% in the year-ago period. The increase in sales helped, as did improvements in "mix" (meaning that the company sold more of its more profitable products) 

How VW's business units performed

  • Sales at the VW brand rose only slightly (0.5%) from a year ago to about 769,000 vehicles. But operating profit surged 87%, to 900 million euros, on cost cuts and improvements in product mix (more SUVs versus small cars).
  • Audi's sales rose 31% to about 478,000 vehicles. Much of that gain was attributable to China: Sales of Audis built by VW's joint venture with Chinese automaker FAW accounted for about 191,000 of that total, up from just 97,000 in Q1 2020. Audi generated 1.4 billion euros in operating profit, up from just 15 million euros in Q1 2020.
  • Porsche sold about 73,000 vehicles in the quarter, up almost 31% on strong demand for the 718 sports car, Macan crossover SUV, and the new electric Taycan sedan. Operating profit rose to 1.2 billion euros from 529 million euros in the prior-year period. 
  • Operating profit at VW's financial-services subsidiary rose to just over 1 billion euros from about 700 million euros a year ago, driven mostly by higher sales of VW Group vehicles. 

What Volkswagen's CFO said about the chip shortage and 2021 guidance

While noting that the company had managed the chip shortage well in the first quarter, CFO Arno Antlitz echoed his counterparts at other global automakers as he warned that semiconductor supplies will get even tighter before they improve.

"The shortage of semiconductors throughout the industry is expected to have a more significant impact in the second quarter than before," Antlitz said. "Nevertheless, we are confident regarding business development in the full year and have therefore raised our outlook."

Antlitz said that auto investors should now expect VW to deliver an operating margin between 5.5% and 7% for the full year, with significantly higher net cash flow (versus 2020) and improved overall liquidity by year-end. 

Note that Antlitz said that VW's guidance assumes that the COVID-19 pandemic gets successfully contained. 

The raw numbers

 Note: As of May 6, 1 euro = about $1.21.

Metric Q1 2021 Change (YOY)
Revenue 62.376 billion euros 13.3%
Vehicles delivered 2,432,000 21.2%
Operating profit 4.812 billion euros 432.3%
Operating margin 7.7% 6.1 pp higher
Net income 3.414 billion euros 560.3%
Earnings per share 6.45 euros 726.9% 
Automotive net cash flow 4.705 billion euros 7.223 billion euros higher

Data source: Volkswagen AG. "Automotive" results exclude results from VW's financial-services subsidiary. Earnings per share are for ordinary shares, the German equivalent of common stock. YOY = year over year. PP = percentage points.