Volkswagen: The Year’s Champion

Europe’s auto giant, Volkswagen AG (VLKAY), struck a chord by proving to be the world’s most profitable automaker in 2010 based on its surging sales in China. For the year, the manufacturer of Audi, Skoda and Lamborghini brands, posted a sevenfold increase in profit to €6.84 billion ($9.42 billion), beating the major automakers such as Ford Motor (F), General Motors (GM) and Toyota Motor (TM) in the earnings race.

In the year, Ford revealed a profit of $7.58 billion (before special items) while GM depicted a profit of $4.9 billion (excluding the net charges related to the purchase of U.S. Treasury preferred shares). Meanwhile, Toyota expects to post a profit of ¥490 billion ($6 billion) for the fiscal year ending March 31.

Revenues in the year appreciated 21% to €126.8 billion ($174.6 billion) on deliveries of 7.2 million units of cars and sport-utility vehicles. Sales in China, the company’s biggest market, surged 37% to 1.92 million units based on strong demand for Lavida sedan and Golf hatchback. Earnings before interest and taxes increased by a robust €5.29 billion to €7.14 billion from €1.85 billion a year ago.

Volkswagen is banking on global expansion to strengthen its market position. The expansion plan is primarily focused on China, where the company owns nine plants. The automaker plans to add two plants and double production capacity to 3 million cars annually in the country. Out of the €51.6 billion investment to be made globally, about €10.6 billion will be diverted to China through 2015.

This apart, the automaker plans to manufacture over 100,000 cars annually in Russia with OAO GAZ, owned by billionaire Oleg Deripaska. It already operates a manufacturing and assembly plant in Kaluga.

The automaker is also on the verge of completing a merger with Germany-based high performance vehicle maker, Porsche SE. The merger, which was supposed to be concluded in the second half of the year, has been delayed until 2012 due to legal issues related to share-price manipulation allegations against Porsche.

Volkswagen, a Zacks #2 Rank (Buy) stock, has targeted to surpass the world’s largest carmaker, Toyota, both in terms of sales and profitability by 2018 based on the strength in the emerging markets, including Brazil, Russia, India and China. The company anticipates its deliveries to grow by 5% percent in 2011.

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