WOLFSBURG (dpa-AFX) - German auto giant Volkswagen AG (VKW.L, VLKAF, VOW.BE) said Friday that it will invest 85.6 billion euros, or about $106 billion, in new models, environmentally friendly technologies and production facilities over the next five years.
The company's announcement follows the group's investment planning for the period from 2015 to 2019 that discussed by Volkawagen's supervisory board at its meeting on Friday. Volkswagen noted that more than half of the investments, or about 56 percent, will be in property, plant and equipment in Germany.
Dr. Martin Winterkorn, Chairman of the Board of Management of Volkswagen in Wolfsburg, said, 'Development costs will remain high in the future as a result of high innovation pressure and increasing demands on the automotive industry from CO2 legislation. As a Group, we have the expertise and financial strength to continue to extend our technology leadership and to reach our goals for 2018.'
According to Volkswagen, the capex ratio will between 6 and 7 percent in the period from 2015 to 2019. The plan includes capitalized development costs of 21.9 billion euros and proceeds from asset disposals of 0.6 billion euros, net of investments in financial assets.
Volkswagen will spend most of the total capex, or 41.3 billion euros, in the automotive division on modernizing and extending the product range for all its brands. The company's main focus will be on expanding the SUV range, particularly in the A/A0 class - as well as on modernizing part of the light commercial vehicle portfolio.
In addition, Volkswagen plans to invest in new vehicles and successor models in almost all vehicle classes, which will be based on the modular toolkit technology and related components.
Further, the company will launch new generations of engines that will offer additional enhancements to performance, fuel consumption and emission levels. The Group will also continue with the development of hybrid and electric drives.
Volkswagen will make cross-product investments of 23 billion euros over the next five years. These include spending to expand capacity, a new Crafter plant in Poland, and a new Audi plant in Mexico.
Volkswagen said that investments in property, plant and equipment, investment property and intangible assets, excluding the capitalized development costs or capex in the automotive division, will amount to 64.3 billion euros during the period.
Volkswagen's Chinese joint ventures will invest 22 billion euros in new production facilities and products during the period from 2015 to 2019. The company noted that the joint ventures in China, which is the Group's largest single market, are not consolidated and are therefore not included in the above figures.
In late October, Volkswagen had reported a 56 percent surge in third-quarter profit after tax to 2.97 billion euros, while sales revenue grew 4 percent to 48.91 billion euros.
Volkswagen, in July, had announced a cost-cutting program of 5 billion euros at its eponymous VW brand as part of efforts to shore up profitability. The company said it wouldl wind down unprofitable models and restructure plants in Germany.
However, Volkswagen remains profitable in Europe, unlike many of its rivals. Ford Motor Co. (F), General Motors Co. (GM), and Peugeot have been paring capacity in Europe to reduce losses.
The company seeks to shore up VW unit's operating profit margin to at least 6 percent by 2018. For the entire group, it has set a margin target of 8 percent.
On Frankfurt's Xetra, Volkswagen shares are currently trading at 175.15 euros, up 1.55 euros or 0.89 percent on a volume of 47,380 shares.
Copyright RTT News/dpa-AFX