VW's Audi will miss 2016 profitability goal

BERLIN (Reuters) - Volkswagen's <VOWG_p.DE> luxury division Audi will miss its benchmark for profitability this year as costs for the diesel emissions scandal and possible recalls of cars fitted with Takata Corp <7312.T> airbags are weighing on results.

First-half operating profit at Audi plunged 18 percent to 2.4 billion euros ($2.66 billion), including 265 million euros of special items which pushed down the brand's operating margin to 8 percent from 9.8 percent a year ago, Audi said on Friday.

Audi, the main contributor to VW group profit, added 165 million euros of provisions in the second quarter for its emissions scandal and effects of potentially faulty Takata airbags, raising the amount of funds set aside for both issues since last year to 563 million euros, a spokesman said.

The Ingolstadt-based carmaker, which to date has been targeting a profit margin of between 8 and 10 percent, on Friday said it now expects "a level slightly below this corridor", without being more specific.

The relapse on profitability coincides with a strategic overhaul at Audi which plans to increase spending on electric cars, digital services and autonomous driving in coming years as part of VW's post-dieselgate shift of business priorities.

"To preserve our innovation and investment course, we will raise efficiency in all parts of the company," finance chief Axel Strotbek said.

VW on Thursday reported a 12 percent drop in quarterly profit at its troubled passenger-car division, a big improvement on the quarter before but highlighting the challenges it still faces to overcome the emissions scandal.

But Audi, which slipped behind Daimler's <DAIGn.DE> Mercedes-Benz last year into third place among the top-selling luxury car brands, said it still counts on more than 20 all-new or redesigned models this year to beat 2015's record 1.8 million auto sales.

(Reporting by Andreas Cremer and Irene Preisinger; Editing by Maria Sheahan)