German big Volkswagen on Thursday reported a drop in first-quarter revenue, saying weaker gross sales in China reaffirms the necessity for the carmaker to shut the hole on its rivals within the nation’s fast-growing electrical automobile market.

Volkswagen stated working revenue fell 31% to five.7 billion euros ($6.3 billion) via the primary three months of 2023, down from 8.3 billion euros over the identical interval final yr.

Europe’s largest carmaker stated working revenue earlier than valuation results from commodity hedging, nevertheless, elevated by 35% to 7.1 billion euros.

First-quarter gross sales income rose by 22% to 76 billion euros, Volkswagen stated, primarily pushed by a restoration in gross sales volumes in Europe and North America.

“We had certainly a very encouraging begin into the yr 2023, with each revenues and underlying working revenue bettering considerably,” Volkswagen Chief Monetary Officer Arno Antlitz informed CNBC’s Annette Weisbach on Thursday.

“As you keep in mind once we launched our targets for 2023, they have been fairly bold, we received this suggestions, however based mostly on that very strong first quarter and based mostly on an order backlog of 1.8 million automobiles in Europe, we’re fairly assured that we’ll obtain all our monetary targets for 2023.”

Shares of Volkswagen have been marginally larger on Thursday morning. The inventory value is up roughly 5.5% year-to-date.

Volkswagen stated deliveries in China slipped 14.5% via the primary three months of 2023 however it stays assured gross sales will recuperate via the rest of the yr, citing an expanded mannequin vary and China-specific know-how.

Requested in regards to the sliding first-quarter gross sales in China, Volkswagen’s replied Antlitz, “We had a gradual begin in China.”

He added it was necessary to differentiate between China’s combustion engine market, the place Volkswagen has lengthy been a frontrunner, and the nation’s battery electrical automobile (BEV) market, the place it needs to meet up with rivals together with Chinese language EV big BYD.

“I simply got here again from Shanghai, I spent there three days taking a look at competitor automobiles, speaking to the groups on the bottom and it is apparent we have to pace up, specifically on the BEV facet,” Antlitz stated.

“I am assured that we’ll play a significant position in China additionally sooner or later,” he added.