Volkswagen reported stronger-than-expected net profit for the third quarter of this year, but the company's chief financial officer told CNBC Tuesday that challenges will only intensify as the market demands more innovation.
"There is a very challenging transition ahead of the entire industry and us certainly as well, which means that even more ambitious CO2 fleet targets we have to meet, this is only to be achieved if you electrify your fleet to a certain extent," said Frank Witter, speaking to the "Squawk Box Europe."
Volkswagen's liquidity was impacted in the latest numbers, as research and development (R&D) costs clocked 9.9 billion euros ($11.25 billion). The CFO stressed this was critical if the company aimed to compete in a fast-evolving auto market.
"We have for the longest time been rightly criticized for overspending," Witter said, confirming guidance for capital expenditure and R&D, each in the range of 6.5 to 7 percent. "We rightly prepare to market for an uplift this year in order to be ready for CO2 compliance by 2020 but also for the continued electrification and digitization of our offering, which is critical to meet those targets."
The European Union has set mandatory emissions targets as part of its strategy to improve the fuel economy of cars sold on the European market, with new fuel consumption limits being handed down in 2020. Volkswagen in September announced its plans to invest 6 billion euros in electric car production, and aims to to build 10 million electric cars based on its new modular electrification kit platform as it targets the launch of worldwide mass production towards the end of 2022.
Earnings beat
The company posted a net profit of 2.7 billion euros in the third quarter of 2018. Analysts were expecting a net income of 2.29 billion euros, according to data firm Refinitiv.
"These are busy times," Witter said, expressing his satisfaction with the numbers. "It's about hard work, having a plan and executing rigorously. That is our agenda and we are very pleased with the numbers for the first nine months."
In the same period last year, the auto giant reported a net income of 1.1 billion euros.
Here are some key highlights of the third quarter:
- Group sales revenue rose by 2.7 percent
- The operating profit remained at 13.3 billion euros — the same level as last year.
- VW Q3 vehicle deliveries down 3.6 pct.
Earlier this year, Volkswagen saw its earnings hit by a 1 billion euro fine regarding diesel emissions regulations and a further hit of 600 million euros for legal expenses. After the diesel emissions scandal first broke in 2015, the German firm unveiled an ambitious plan to become a global leader in green transport. Shares of Volkswagen rose 3.8 percent in morning Frankfurt trade, putting them among the biggest gainers on Germany's blue-chip DAX index.