Group Management Report

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Risks and opportunities from the macroeconomy, the sector, markets and sales

For this risk category, the likelihood of occurrence is classified as high (previous year: high) and the potential extent of damage is classified as medium (previous year: medium).

The most significant risks from the QRP lie in restrictions on trade and increasingly protectionist tendencies resulting in a negative trend in markets and unit sales.

Macroeconomic risks and opportunities

We believe that risks to positive growth in global economic output arise primarily from a failure to contain the Covid-19 pandemic in a lasting way, turbulence in the financial and commodity markets, supply shortages in connection with imbalances between supply and demand, increasingly protectionist tendencies, and structural deficits, which pose a threat to the performance of individual advanced economies and emerging markets. In addition, there are increasing environmental challenges that affect individual countries and regions to varying degrees. The potential worldwide transition from an expansionary to a more restrictive monetary policy together with continuing inflationary tendencies also presents risks for the macroeconomic environment. High private- and public-sector debt in many countries is clouding the outlook for growth and may likewise cause markets to respond negatively. Demographic change may also inhibit growth. A decline in growth in key countries and regions often has an immediate impact on the state of the global economy and therefore poses a central risk. There are also risks from the still uncertain consequences of the United Kingdom’s exit from the EU.

The economic development of some emerging economies is being hampered primarily by dependence on energy and commodity prices and capital inflows, but also by socio-political tensions. Corruption, inadequate government structures and a lack of legal certainty can also pose risks.

Geopolitical tensions and conflicts, along with signs of fragmentation in the global economy, are a further major risk factor to the performance of individual countries and regions. In light of the existing, strong global interdependence, local developments could also have adverse effects on the world economy. Any escalation of the conflicts in the Middle East or Africa, and especially the current conflict between Russia and Ukraine, for example, could cause upheaval on the global energy and commodity markets and exacerbate migration trends. An aggravation of the situation in East Asia could also put a strain on the global economy. The same applies to violent conflicts, terrorist activities, cyber attacks and the spread of infectious diseases, which may suddenly result in unexpected market reactions.

Overall, we expect a positive development of the global economy for 2022. However, due to the risk factors mentioned, as well as cyclical and structural aspects, another slump in the global economy or a period of below-average growth rates is also possible.

The macroeconomic environment may also give rise to opportunities for the Volkswagen Group if actual developments turn out to be more positive than expected.

Sector-specific risks and market opportunities/potential

Western Europe, especially Germany, and China are our main sales markets. A drop in demand in these regions due to the economic climate would have a particularly strong impact on the Company’s earnings including financial services. We counter this risk with a clear, customer-oriented and innovative product and pricing policy.

Outside Western Europe and China, delivery volumes are spread widely across the key regions: Central and Eastern Europe, North America and South America. In addition, we either already have a strong presence in numerous existing and developing markets or are working systematically towards this goal. Particularly in smaller markets with growth potential, we are increasing our presence with the help of strategic partnerships in order to cater to local requirements.

The growth markets of Central and Eastern Europe, South America and Asia are particularly important to the Volkswagen Group. These markets harbor considerable potential; however, the underlying conditions in some countries in these regions make it difficult to increase unit sales figures there. Examples of these are customs regulations or minimum local content requirements for production. At the same time, wherever the economic and regulatory situation permits, there are opportunities above and beyond current projections. These arise from faster growth in the emerging markets where vehicle densities are currently still low.

Price pressure in established automotive markets for new and used vehicles as a result of high market saturation is a further risk for the Volkswagen Group as a supplier of volume and premium models. Competitive pressures are likely to remain high in the future. Individual manufacturers may respond by offering incentives in order to meet their sales targets, putting the entire sector under additional pressure.

There is a risk that excess capacity in global automotive production may lead to a rise in inventories and therefore an increase in tied-up capital. With a decline in demand for vehicles and genuine parts, automotive manufacturers may adjust their capacities or intensify measures to promote sales. This would lead to additional costs and greater price pressure.

Supply chain disruption may give rise to the risk of underutilization of capacity in global automobile production, meaning that existing demand can only be partially met.

The demand that built up in individual established markets in times of crisis could result in a marked recovery if the economic environment eases more quickly than expected.

In Europe, there is a risk that further municipalities and cities will impose a driving ban on vehicles with combustion engines in order to comply with emission limits. China imposed a so-called “new energy vehicle quota” in 2019, which means that battery-electric vehicles, plug-in hybrids and fuel cell vehicles will have to account for a certain proportion of a manufacturer’s new passenger car fleet. To ensure compliance with emissions standards, we continuously tailor our range of vehicle models and engines to the conditions in the relevant markets. These requirements may lead to higher costs and consequently to price increases and declines in volumes.

Economic performance may vary from region to region. The resulting risks for our trading and sales companies, such as in relation to efficient inventory management and a profitable dealer network, are substantial and are being responded to with appropriate measures on their part. However, financing business activities through bank loans remains difficult. Our financial services companies offer dealers financing on attractive terms with the aim of strengthening their business models and reducing operational risk. We have installed a comprehensive liquidity risk management system so that we can promptly counteract any liquidity bottlenecks at the dealership end that could hinder smooth business operations.

We continue to approve loans for vehicle financing on the basis of the same cautious principles applied in the past, for example by taking into account the regulatory requirements of section 25a(1) of the Kreditwesengesetz (KWG – German Banking Act).

Volkswagen maintains a selective distribution system. Within the European Union, dealers and service partners are selected – where permissible – using qualitative and quantitative-qualitative criteria in accordance with the provisions of EU Regulations 330/2010 and 461/2010. Regulation 330/2010 is currently being revised by the European Commission. The new version is due to enter into force on June 1, 2022. The European Commission published a first draft in July 2021. This contains new requirements on the design of a selective distribution system, particularly with respect to dual distribution systems. A final evaluation of whether and to what extent the distribution system of Volkswagen AG will be specifically affected by the legal changes will only be possible once the new regulation has been adopted.

Volkswagen AG may be exposed to increased competition in aftermarkets. This is due to the provisions of the block exemption regulations, which have applied to after-sales services since June 2010, the provisions of EU Regulation 566/2011 dated June 8, 2011 and the room for interpretation concerning the amendments included in EU Regulation 858/2018 applicable from September 1, 2020, regarding independent market participants’ access to technical information.

In Germany, legislation entered into force on December 2, 2020 to restrict or abolish design protection for repair parts through the introduction of a repair clause. In addition, the European Commission is evaluating the market with regard to existing design protection. A possible restriction or abolition of design protection for visible replacement parts could adversely affect the Volkswagen Group’s genuine parts business.

The automotive industry is facing a process of transformation with far-reaching changes. Electric drives, connected vehicles and autonomous driving are associated with both opportunities and risks for our vehicle sales, our after-sales business and our dealerships. In particular, more rapidly evolving customer requirements, swift implementation of legislative initiatives, including in connection with the achievement of climate protection targets, and the market entry of new competitors from outside the industry will require changed products at a faster pace of innovation and adjustments to business models. There is uncertainty regarding the widespread use of electric vehicles and the availability of the necessary charging infrastructure.

There is also a risk of freight deliveries worldwide being shifted from trucks to other means of transport, and of demand for the Group’s commercial vehicles falling as a result.

Below, we outline the regions and markets with the greatest growth potential for the Volkswagen Group.


Demand for vehicles is expected to increase in the coming years due to the need for individual mobility. It is also expected that demand will shift from the coastal metropolises to the country’s interior and that competitive pressure from local manufacturers will increase. In order to leverage the considerable opportunities offered by this market – also with regard to e-mobility – and to defend our strong market position in China over the long term, we are continuously expanding our product range to include models that have been specially developed for this market. We are further extending our production capacity in this growing market.


The Volkswagen Group has consolidated its activities in this strategically important future market and launched a model initiative with new models tailored to customers’ needs: the Taigun from the Volkswagen Passenger Cars brand and the ŠKODA Kushaq.


In the USA, Volkswagen Group of America is steadfast in its pursuit to become a full-fledged volume supplier and expand its market share. The expansion of local production capacity – including production for electric vehicles from 2022 – will allow the Group to better serve the market in the North America region. We are also working intensively on offering additional products specifically tailored to the US market.


The growing number of automobile manufacturers with local production has resulted in a sharp increase in price pressure and competition. The Brazilian market plays a key role for the Volkswagen Group. To strengthen our competitive position here, we offer vehicles tailored specially for this market that are locally produced, such as the Gol and the Nivus.

Middle East

Political and economic uncertainty in the region weigh on the passenger car markets. In spite of this instability, the Middle East region offers short-term and long-term growth potential. We aim to leverage the potential for growth with a range of vehicles that has been specifically tailored to this market, without having our own production facilities there.

Power Engineering

Global economic trends are likely to continue, such as digitalization and the increasing interest in emissions-reducing technologies associated with decarbonization. Growing global energy needs call for innovation in the industry and a growing willingness on the part of governments to invest in line with the global climate policy.

Despite an improved market level, the marine market continues to see the consequences of the Covid-19 pandemic and the ongoing uncertainty regarding future emissions regulations. There is a risk that investments will be postponed and that there will be a distinct slowdown in project business.

In turbomachinery, there is the risk that planned projects and orders will be scaled back or postponed due to negative developments in sales markets or individual applications.

We address these risks by constantly monitoring the markets, focusing on less strongly affected market segments, working closely with all business partners such as customers and licensees, and introducing new and improved technologies.

We are working systematically to leverage market opportunities at a global level, for example by positioning ourselves as a solution provider for reduced-CO2 drive and energy-generation technologies as well as for storage technology. Moreover, significant potential can be leveraged in the medium term by enhancing our after-sales business through the introduction of new digital products and the expansion of our service network. The requirements for occupational safety, which will continue to increase in the future, the availability of the plants that are already in operation, the increase in environmental compatibility, and efficient operation, together with the large number of engines and plants, will provide the basis for growth. Digital service solutions, for instance for remote plant surveillance, offer growth potential despite the pandemic.

As part of the capital goods industry, the Power Engineering business is affected by fluctuations in the investment climate. Even minor changes in growth rates or growth forecasts, resulting from geopolitical uncertainties or volatile commodities and foreign exchange markets, for example, carry the risk of significant changes in demand or the cancellation of already existing orders.

The measures we use to counter the substantial economic and extraordinary risks include flexible production concepts and cost flexibility by means of temporary external personnel, working time accounts and Kurzarbeit (short-time working), and the necessary structural adjustments.

Sales risks

There is a risk that the Volkswagen Group could experience decreases in demand, possibly exacerbated by media reports or insufficient communication. Other potential consequences include lower margins in the new and used car businesses and a temporary increase in funds tied up in working capital.

The Volkswagen Group’s multibrand strategy may weaken individual Group brands if there are overlaps in customer segments or the product portfolio. This effect may be reinforced by the Volkswagen Group’s common-parts strategy, as this strategy means that, in some cases, the differences in product substance between the brands are small. As a result, there could be a risk of internal cannibalization between the Group brands, higher marketing costs, or repositioning expenses. By sharpening the brand identities as part of our Best Brand Equity instrument, we are working to minimize these risks.

The fleet customer business continues to be characterized by increasing concentration and internationalization, accompanied by the risk that the loss of individual fleet customers may result in relatively high volume losses. Viewed over an extended period, the fleet customer business is more stable than the business with retail customers. The Volkswagen Group is well positioned with its broad portfolio of products and drive systems, as well as its target-group-focused customer care, and counteracts a concentration of default risks at individual fleet customers or markets. The consistently high market share in Europe shows that fleet customers still have confidence in the Group.

Consumer demand is shaped not only by real factors such as disposable income, but also by psychological factors that cannot be planned for. A current example is that of the Covid-19 pandemic. Households’ worries about the future economic situation, for example, may lead to unexpected buyer reluctance. This is particularly the case in saturated automotive markets such as Western Europe, where demand could drop as a result of owners holding on to their existing vehicles for longer. We are countering the risk of buyer reluctance with our attractive range of models and our strict policy of customer orientation.

A combination of buyer reluctance in some markets as a result of the crisis, and increases in some vehicle taxes based on CO2 emissions – which have already been observed in many European countries – may shift demand towards smaller segments and engines, for example. We counter the risk that such a shift will negatively impact the Volkswagen Group’s financial situation by constantly developing new, fuel-efficient vehicles and alternative drive technologies, based on our drivetrain, fuel and mobility strategies.

Automotive markets around the world are exposed to risks from government intervention such as tax increases, which curb private consumption, and from restrictions on trade and protectionist tendencies such as tariffs and sanctions. Furthermore, there are future risks from the sale of electrified vehicles if the minimum requirements for local content under free trade agreements cannot be achieved. Sales incentives may lead to shifts in the timing of demand.

Commercial vehicles are capital goods: even minor changes in growth rates or growth forecasts may significantly affect transport requirements and thus demand. The resulting risk of production fluctuations calls for a high degree of flexibility from the manufacturers. Although production volumes are significantly lower, the complexity of the trucks and buses range does in fact significantly exceed the already very high complexity of the passenger cars range. Key factors for commercial vehicle customers are total cost of ownership, vehicle reliability and the service provided. Furthermore, customers are increasingly interested in additional services such as freight optimization and fleet utilization, which we offer in the commercial vehicle segment through the digital brand RIO, for example.

Power Engineering’s two-stroke engines are produced exclusively by licensees, particularly in South Korea, China and Japan. The global demand for ships is increasing due to the overall positive development in world trade; however, the volatility in new shipbuilding orders poses the risk of declining license revenues. Due to changes in the competitive environment, especially in China, there is also the risk of losing market share.

Russia-Ukraine conflict

At the time of preparing this report, there is a risk that the latest developments in the Russia-Ukraine conflict will have a negative impact on the Volkswagen Group’s business. This may also result from bottlenecks in the supply chain. At the present time, it is not yet possible to conclusively assess the specific effects.

Nor is it possible at this stage to predict with sufficient certainty to what extent further escalation of the Russia-Ukraine conflict will impact the global economy and growth in the industry in fiscal year 2022.

The Volkswagen Group does not have any material subsidiaries and equity investments in Ukraine.

In Russia, the Volkswagen Group has in particular the production company at the Kaluga site, as well as sales units and financing companies. They could above all be adversely affected by the sanctions already resolved, but also by new sanctions and general developments in Russia.

In relation to the net assets, financial position and results of operations of the Volkswagen Group, the business activities of the Volkswagen Group in these two countries are insignificant.

There is a risk that a further escalation of the conflict could have a material adverse effect on the results of operations, financial position and net assets of the Volkswagen Group.

Other factors

In addition to the risks outlined in the individual risk categories, there are other factors that cannot be predicted and whose repercussions are therefore difficult to control. Should these transpire, they could have an adverse effect on the further development of the Volkswagen Group. In particular, such occurrences include natural disasters, pandemics – such as the current spread of the SARS-CoV-2 virus –, violent conflicts – such as the current conflict between Russia and Ukraine – and terrorist attacks.

There is a risk that the Covid-19 pandemic could intensify, due to reasons such as changes in the virus. All areas of the Volkswagen Group are affected by the pandemic. There are risks arising in particular from a fall in demand and an increasing intensity of competition. In production, there are risks especially with regard to stable supply chains and protecting the health of our staff. We have put in place increased hygiene and protective measures to ensure plants can operate.

Plug-in hybrid
Performance levels of hybrid vehicles. Plug-in hybrid electric vehicles (PHEVs) have a larger battery with a correspondingly higher capacity that can be charged via the combustion engine, the brake system, or an electrical outlet. This increases the range of the vehicle.