Volatile times for VW Group, as it reduces 2016 capex

It’s troubling times for the Volkswagen Group, brought about by the emissions cheating case that’s widening. Fixing the affected cars and its reputation costs money, and the group has announced that it is aligning investment activity with the current situation and reducing capital expenditure (capex).

The aim is for planned investments in property, plant and equipment, investment property and intangible assets, excluding capitalised development costs to be capped at approximately 12 billion euros next year. The average figure for the previous planning period was about 13 billion euros per year.

“We are operating in uncertain and volatile times and are responding to this. We will strictly prioritise all planned investments and expenditures. As announced, anything that is not absolutely necessary will be cancelled or postponed,” said new boss Matthias Müller.

However, expenditure on alternative drive technologies will be increased by approximately 100 million euros next year. “We are not going to make the mistake of economising on our future. For this reason we are planning to further increase spending on the development of e-mobility and digitalisation,” he said, adding that the core focus will be on rapidly developing electric drive systems for the Volkswagen, Audi and Porsche brands.

Most of the capex is earmarked for new products, the continuing rollout and enhancement of the modular toolkits, and the completion of ongoing investments to expand capacity.

Examples include product start-ups such as the next-generation Golf, the Audi Q5, the new Crafter plant in Poland, as well as upfront expenditures for the modularelectric toolkit (MEB). Around 50% of capex will be spent on the group’s 28 locations in Germany.

Müller also outlined the first projects as examples where investments are being spread out or cut back. For example, construction of the planned new design centre in Wolfsburg is being put on hold, saving approximately 100 million euros. The construction of a paint shop in Mexico will be reviewed.

In the car model range, the successor to the VW Phaeton limo – a pure-play electric model – is being delayed. “We will review and potentially cancel further expenditures or spread them out to a greater extent in the next few weeks, but without putting our future viability at risk,” explained Müller, who added that VW “will make every effort to keep our core workforce on board.”

VW’s joint ventures in China are not included in the above figures. They will maintain their previously announced investment levels with expenditures of approximately 4.4 billion euros in 2016, financed from the joint ventures’ own funds.

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