Audi expects higher car sales, further investment in bid to dethrone BMW

Dow Jones Newswires (Frankfurt) - Volkswagen AG's (VOW.XE) premium brand Audi expects sales growth and plans further investment this year as it seeks to dethrone competitor BMW AG (BMW.XE) as the leading luxury car maker.

Audi is pushing for growth even if it comes at the expense of profitability for a time, with investments in capacity and more sport utility vehicles.

"In the coming two years, we are preparing to make the step towards selling two million cars annually," Audi Chief Executive Rupert Stadler said, a goal it intends to reach by 2020.

Previously, Audi had targetted selling 1.5 million cars by 2015. Having reached 1.45 million in 2012, the auto maker is bringing that goal forward, though it declined to be precise on timing.

"There are years in which to harvest in our industry and there are years in which you sow," Mr. Stadler said.

Revenue rose in 2012 nearly 11% to 48.8 billion euros ($63.5 billion), but net profit fell about 2% largely on investments and higher costs.

Audi has earmarked another EUR11 billion for investments through 2015, including expanding production and adding about 1,500 employees in Germany.

Audi will open a new plant in China and expand a facility in Hungary, both making A3 models. This year, Audi will also begin construction of a SUV plant in Mexico, and start production in Kaluga, Russia.

The company forecast a "modest" sales increase for 2013 and 2014, with growth in the U.S. and emerging markets offsetting Europe's lagging demand.

Audi's plans are "ambitious but feasible," said Stefan Bratzel, Director of the Center of Automotive Management. He said Audi can increase sales in Europe by focusing on small SUVs, one of the few bright spots in sales, and through expansion in China.

"China is a cornerstone of this strategy," he said. "If China doesn't grow, then Audi won't have the chance to get to this two million (car sales)."

Tim Urquhart at research firm IHS Automotive said expanding the SUV line-up will improve Audi's mix and help it in new markets. He noted, as well, that Audi and other luxury car makers' discounts in China have pressured margins lower.

Last year Audi's operating margin was 11%, a slight drop from 2011, though still within target. The company expects it to be at the upper end of its target 8%-10% range in the coming two years.

Analysts expect BMW to also record a double-digit margin for 2012.

Daimler AG's (DAI.XE) operating profit margins fell at the company's main divisions in 2012. In the fourth quarter, operating margins at Mercedes-Benz declined to 5.3% from 8.2% a year earlier. The 5.3% figure was about half of BMW's margins in recent quarters.

Mr. Bratzel said Audi's operating margins are decent, and expects BMW to be in the same range.