Volkswagen (VWAGY) reported lackluster third-quarter results on Wednesday, another sign that the major automaker is struggling with slowing global demand and competition from Chinese automakers. It became.
For the third quarter, Volkswagen reported a 42% decline in operating profit to 2.86 billion euros ($3.1 billion), although sales fell only 0.5%. What was even more concerning was that the operating profit margin fell from 6.2% in the same period of the previous year to 3.6% as worldwide deliveries decreased by 8.3% to 2.12 million units.
Volkswagen, whose brands include Audi, Bentley and Porsche, as well as Skoda and Scania in Europe, is struggling with high production costs and slowing demand. And in China, the joint venture is under pressure from domestic automakers such as BYD and LI.
Volkswagen Group CFO and COO Arno Antlitz said in a statement that the results for the year so far “reflect the challenging market environment and the importance of delivering on the performance program we have launched across the Group. It emphasizes sexuality.”
“The Volkswagen brand reported an operating profit margin of just 2% after nine months, highlighting the urgent need for significant cost reductions and efficiency gains,” he said. said.
Volkswagen maintained its full-year forecast for 2024, which had been lowered just last month. VW expects net cash flow from its auto business to fall to around 2 billion euros, down from 2.5 billion euros previously to 4.5 billion euros, with sales down 0.7% to 320 billion euros ($356.7 billion). He said he expected it.
Volkswagen also forecast a profit margin of around 5.6% in 2024, down from its previous forecast of 6.5-7%.
The Volkswagen ID.Buzz will be on display on March 27, 2024 during the New York International Auto Show 2024, where automakers introduce their latest models to the world. (Fatih Aktas/Anadolu via Getty Images) · Anadolu via Getty Images
In China, sales fell 12% year over year, reflecting weaker demand for the company’s products compared to competitors. To strengthen its business in China, VW announced earlier this year that it would partner with China’s XPeng (XPEV) to produce two new Volkswagen-branded electric vehicles that leverage XPeng’s software and EV engineering.
Volkswagen’s luxury brand Audi also announced this year that it had signed a contract with China’s state-run SAIC Motor Corporation to develop a new EV for the mainland.
Bank of America analyst Horst Schneider believes VW is selling EVs at a loss in China until a new model designed by XPeng arrives.
“Volkswagen is[selling EVs at a loss]because they say we’re implementing a new China strategy called ‘China for China,'” Schneider said earlier this month. I wrote this in a memo to investors. “They want to implement it in the first vehicles in 2026/27, and by 2026/27 Volkswagen needs to somehow survive on the market. That means they basically accept losses. …and we’re going to get some benefit[by 2027]” market share (from new EVs). ”
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Volkswagen representatives at the table during the second round of collective negotiations between Volkswagen and IG Metall on October 30, 2024. (Moritz Frankenberg/Photo Alliance, via Getty Images) · Photo Alliance, via Getty Images
Meanwhile, the company is implementing a $10 billion cost-cutting program that could include closing at least three VW factories in Germany. VW is in talks with IG Metall, Germany’s largest autoworkers’ union, to fight the closure. VW also confirmed it would close the Audi EV plant in Brussels due to poor sales.
Volkswagen isn’t the only automaker struggling with weak demand and sales. Luxury rival Mercedes-Benz’s profits fell 65% from a year earlier, and Ford (F) shares fell as EV costs weighed on results, leading to the lower end of its profit outlook. Ford CEO Jim Farley has warned multiple times about the dominance of Chinese EVs and the impact on Western automakers.
Nevertheless, Volkswagen shares rose in German trading today as Wednesday’s results were better than feared and cost-cutting plans could finally get VW back on track. There is.
“We’re a little more bullish on companies like Volkswagen because we think there will be significant restructuring,” BofA’s Schneider said. “In 2025/26, basically these restructuring efforts are likely to have some effect and earnings may improve, especially in Europe.”
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Pras Subramanian is a reporter for Yahoo Finance. you can follow him × And also on Instagram.
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