Volkswagen (VWAGY) reported lackluster third quarter results on Wednesday, another sign large automakers are mired with softening global demand and competition from Chinese automakers.
For Q3, Volkswagen reported operating profit that slid 42% to 2.86 billion euros ($3.1 billion), though revenue only fell 0.5%. More worrisome was the operating margin falling to 3.6%, down from 6.2% a year ago, with global deliveries down 8.3% to 2.12 million vehicles.
Volkswagen, which counts Audi, Bentley, and Porsche among its brands, as well as Skoda and Scania in Europe, is struggling with high production costs and softening demand. And in China, its joint ventures are under pressure from domestic automakers like BYD (BYD) and Li Auto (LI).
Results year to date “reflect a challenging market environment and underline the importance of delivering on the performance programs we have launched across the Group,” Arno Antlitz, Volkswagen Group CFO and COO, said in a statement.
“Volkswagen Brand reported an operating margin of only 2% after nine months. This highlights the urgent need for significant cost reductions and efficiency gains,” he said.
Volkswagen maintained its 2024 full-year guidance, which was cut just last month. VW said it expects net cash flow from automotive operations to be around 2 billion euros, down from 2.5 billion to 4.5 billion euros previously, with revenue falling by 0.7% to 320 billion euros ($356.7 billion)
Volkswagen also maintained its profit margin forecast of around 5.6% in 2024, down from the prior 6.5%-7% estimate.
In China, sales fell 12% year over year, reflecting weakening demand for its products versus competitors. To shore up its China operations, VW said earlier this year that it would partner with China’s XPeng (XPEV) to produce two new electric vehicles with Volkswagen branding, powered by XPeng’s software and EV engineering.
Volkswagen’s premium brand Audi also announced this year that it had signed a deal with China’s state-owned SAIC to develop new EVs for the mainland.
Bank of America analyst Horst Schneider believes VW is selling EVs at a loss in China until its new EVs designed by XPeng arrive.
“Volkswagen is [selling EVs at a loss] because they say we have a new China strategy in place, which is called ‘In China for China,’” Schneider wrote in a note to investors earlier this month. “They want to implement that into the first vehicles in 2026/27, and by ’26/’27 Volkswagen somehow needs to survive in the market, and that means they accept basically losses … And then [by 2027] they try to gain some market share [with new EVs].”
Meanwhile, the company is implementing a $10 billion cost-cutting program, which may include the closure of at least three VW plants in Germany. VW is in talks with IG Metall, the largest auto union in Germany, which is fighting the closures. VW also confirmed that it will close its Audi EV plant in Brussels due to lackluster sales.
Volkswagen isn’t the only automaker stuck with softening demand and sales. Luxury rival Mercedes-Benz saw its earnings slide 65% compared to a year ago, and Ford’s (F) shares sank after it guided to the low end of its profit guidance, with EV costs weighing on results. Ford CEO Jim Farley has warned time and time again about China’s EV dominance and its repercussions for Western automakers.
Nevertheless, Volkswagen shares traded in Germany are higher today, as Wednesday’s results were better than feared and cost-cutting plans may eventually get VW back on track.
“On companies like Volkswagen, we are a little bit more bullish, just because we think there’s a lot of restructuring,” BofA’s Schneider said. “There could also be some upside in ’25/’26 that basically these restructuring efforts show some benefit, and the earnings then also improve, especially for Europe.”
Pras Subramanian is a reporter for Yahoo Finance. You can follow him on X and on Instagram.
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