WLTP bottlenecks to cost billions

Problems squeezing enough of its cars through the new WLTP emissions test has forced Volkswagen today to warn shareholders not to expect big profit leaps this year.

Though it reported healthy rises in sales, revenues and profits in the first half of the year, Volkswagen Group chairman Dr Herbert Diess warned investors that not to expect a second-half surge.

He cautioned that up to a quarter of a million cars would suffer production delays, at a cost of billions of euros, because of Volkswagen’s difficulties getting its cars certified on the WLTP test.

Volkswagen’s WLTP issues are already impacting Australia, where various models are being lost from the line-up.

For instance, the standard-wheelbase Tiguan line-up will revert to just two full-time models in October and all diesel engines will have disappeared from the passenger car range by then as well . Another victim of the WLTP backlog is the entry-level 110TSI model in the Golf small car range.

The impact does vary from factory to factory. For instance, the long-wheelbase Tiguan Allspace range launched last week has more models than the standard Tiguan in part because there is less backlog testing for WLTP out of the Mexican plant where it is built than VW’s Wolfsburg plant in Germany, where Australian supply of that model comes from.

The Worldwide Light Duty Vehicles Harmonized Test Procedure (WLTP) is much harder to comply with than the outgoing NEDC test.

Car-makers have to test not just each new model, but each example within a model range, including all different engines, gearboxes, tyre sizes and different combinations of all three.

The WLTP even demands new tests for different air-conditioners, different suspension systems, different brake packages and minor equipment level changes in a chase for a more accurate fuel-consumption and emissions data for customers.

Each test takes about 48 hours and must be conducted at precisely 21 degrees.

Effective for all new cars sold from from September 1, it is expected to hit car-makers hard across Europe, in particular, with Daimler, the Volkswagen Group, BMW and Renault all admitting not all of their models will be certified in time for the WLTP’s arrival.

A major issue for car-makers is that the entire supply of continent’s certified test benches is booked solid through to the end of next year by brands desperate to get their new cars on sale.

Any model, or specification of a model, that hasn’t been certified by September 1 won’t be able to be sold, even if it’s been on sale before that date.

“The Volkswagen Group performed successfully in the first half of the year, with very solid growth in sales revenue and earnings. We also delivered more vehicles than ever before,” Dr Diess said.

“However, we cannot rest on our laurels because great challenges lie ahead of us in the coming quarters – especially regarding the transition to the new WLTP test procedure.

“Growing protectionism also poses major challenges for the globally integrated automotive industry.”

Volkswagen’s WLTP bottleneck isn’t helped by the senior powertrain expertise wiped from the company in the wake of Dieselgate.

“Engine development expertise has been lost,” Dr Diess admitted.

“That impacts capacity utilisation at our plants, so there will be closure days at our sites during this period.

“One thing is clear, though: this will be a titanic task for the second half of the year, particularly on the margin side,” he said.

Volkswagen last week hired BMW’s engine development guru (and an ex-colleague of Dr Diess’s), Markus Duesmann to help with the struggle.

Even with Dieselgate costs ripping €1.6 billion out of its bottom line in the first half of the year, the VW Group still delivered 5.5 million vehicles, rising 7.1 percent on 2017’s first half.

“Over the coming months, we will do everything in our power to validate the trust of our customers worldwide,” Dr Diess insisted.

“Our stated goal is to transform Volkswagen into our industry’s leading company in terms of profitability, innovative power, sustainability and customer satisfaction.”

VW Group sales rose to €119.4 billion, with a billion-euro rise in operating profit to €9.8 billion.

“The first half of the year showed that the Group has a solid operating and financial base,” the Volkswagen Group’s Finance and IT board member, Frank Witter, said.

“However, as communicated several times before, we need to prepare a volatile second half of the year, particularly due to the WLTP.

"We are working at high pressure on further measures to keep the effects on our production as low as possible," he said.