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Volkswagen lifted the profit target for its VW brand on Thursday after the German carmaker revealed that it had nearly hit the objective three years ahead of schedule.

VW said the brand would exceed a profit margin of 2.5 to 3.5 per cent this year. Given that it is closing on a 4 per cent goal set last year for 2020, it also lifted its ambition for that year to 4-5 per cent.

A turnround at the core passenger car brand has been central to recovery efforts at the group, whose 12 brands include higher-margin units such as Porsche, Audi and Skoda.

“VW is now moving from defence to offence,” said Arndt Ellinghorst, analyst at Evercore ISI. “Even though these targets remain below the brand’s potential, they are moving in the right direction.”

VW brand chief Herbert Diess said there was still work to be done in an “extremely demanding phase” for the industry. Carmakers are under pressure to meet stricter emissions limits and adapt to the transition towards shared, electrified and self-driving vehicles.

Since the brand unveiled its 2025 strategy a year ago, VW Group shares have climbed 52 per cent to €178.59, their highest since August 2015 — just before the Environmental Protection Agency revealed that VW had been caught cheating diesel emission tests in the US.

The shares rise partly reflects the success of Mr Diess, a former BMW executive hired in 2015 for his reputation of delivering tough cost-cutting measures. 

Mr Diess has used the emissions scandal as a catalyst for reform, earning praise from investors but creating tension with VW’s powerful trade unions.

In February, Bernd Osterloh, the labour union boss, accused him of “flagrantly” violating the terms of a “future pact”. The works council complained that management cut headcount “as soon as the ink under the contracts was dry”, rather than through natural attrition by 2020.

The deal called for a reduction in headcount of up to 30,000 by 2020 in an effort to save €3.7bn. VW said on Thursday that it had cut costs by €1.9bn and slashed 3,800 jobs. Headcount will only fall 1,800, however, as it expects to recruit 2,000 apprentices.

VW said it hoped by 2020 to create a further 9,000 jobs in “future-oriented areas” such as digitalisation and electric mobility.

The VW brand has been setting sales records with its expanding line-up of sports utility vehicles. In October, it delivered 550,900 cars, bringing the 2017 total to 5.04m, 3.2 per cent up on a year earlier.

Profits from SUVs are enabling VW to invest €4bn over the next five years to roll out its MEB platform, an “electric architecture” its plants around the world will use to build battery-powered cars.

VW’s first car to be assembled on the platform will be the ID — an electric hatchback with a range of up to 600km — due out in 2020. 

The company conceded that VW’s 2020 electric line-up could be lossmaking in the first year or two, but it maintained an overall 6 per cent margin target for 2025.

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