Volkswagen takes steps to boost its China business as first-half earnings fall by 20%

Volkswagen saw after-tax earnings fall by 20% in the first half of the year, to 8.5 billion euros ($9.45 billion), as the automaker tries to engineer a rebound in China.

The decline from the same period last year was due in part to a 2.5 billion euro non-cash loss on raw materials hedging in financial markets. Companies use such market strategies to offset risk and insure themselves against rapid changes in the prices of raw materials.

Volkswagen said operating earnings, excluding the hedging effect, rose 13% to 13.9 billion.

Chief Financial Officer Arno Antlitz said the company “achieved solid financial results” in the first six months of the year and that with changes in the China business, “we will improve the competitive business of the Volkswagen Group even further.”

The company said its business in Western Europe was strong, given an order book of 1.65 million vehicles, including 200,000 battery-only electric cars, “demonstrating stable customer demand.”

Volkswagen reaffirmed its financial outlook for the year and said it was taking steps to strengthen its business in China, where it has seen sales decline in the face of stronger local competition.

Sales revenue increased 18.2% as the company stemmed some of its losses in China, where sales were down 1.2%.

The Wolfsburg, Germany-based company has announced partnerships between its Volkswagen brand and local electric carmaker Xpeng as well as the expansion of cooperation between its Audi luxury brand and local partners FAW and SAIC. The partnerships are aimed at developing new models for promising markets in China, the world’s largest car market.

While affirming its earnings outlook for the year, the company lowered its outlook for deliveries to 9 million to 9.5 million vehicles, from 9.5 million earlier.

The company sold 4.4 million cars during the first six months of the year, up 13% on strong performance outside China. Non-China sales rose 21%. MDT/AP