Volkswagen returns to profit on robust demand in China
VW’s results add to growing evidence that the motor industry has dealt with the pandemic better than feared
Frankfurt — Volkswagen (VW) returned to profit in the third quarter, mirroring upbeat results of peers including Daimler and Tesla as robust demand in China helped the car industry navigate the fallout from the Covid-19 pandemic.
Operating profit before special items was €3.2bn, rebounding from a loss in the second quarter, the company said on Thursday. VW also reported better-than-expected sales in the three months through September.
The world’s best-selling vehicle maker benefited from its large footprint in China, where sales have bounced back to pre-crisis levels. But a second wave of surging infections across North America and Europe and a partial lockdown in its home market Germany risk choking a wider recovery. Several competitors have pointed out that the coming months are difficult to predict after the coronavirus already shuttered factories and showrooms in the second quarter, triggering billions of euros in losses.
VW's results add to growing evidence that the motor industry has dealt with the pandemic better than feared. Carmakers from Ford to BMW and Fiat Chrysler Automobiles reported better-than-expected results in the past weeks. Toyota Motor earlier on Thursday said its global sales rose 2% in September from the same month in September, spurred by strong demand in China and the US.
VW's shares rose 2.9% in Frankfurt, valuing the company at about €67bn. They have fallen by more than a quarter in 2020.
In Europe, where VW runs most of its factories, the virus is once again threatening to curb sales. Germany and France decided to clamp down on movement for at least a month, coming close to the stringent lockdowns in the spring as Europe seeks to limit the spread of the virus. While the region’s two biggest economies will shutter bars, restaurants and non-essential services, they are allowing most businesses to operate.
Maintaining its sprawling manufacturing network is key for VW after it rolled out critical models including the latest Golf hatchback and started delivering the all-electric ID. 3 to customers in September. Success of the ID. 3 and its coming SUV sibling, the ID. 4, is vital to jump-start VW’s electric car push, the industry’s biggest, after a bumpy beginning that was plagued by software problems.
Porsche, the financial services unit and the Czech Skoda brand helped the group eke out a profit with positive operating results, while the main VW passenger-car brand remained loss-making in the first nine months of the year due to lower sales volumes and higher costs related to the diesel-emissions scandal. Unit sales at the MAN truck business fell by nearly a quarter through September, with shipments at Spanish carmaker Seat and German luxury brand Audi also dropping significantly.
VW stuck to its outlook from April that saw global deliveries, revenue and operating profit falling “severely” in 2020, but the manufacturer still expects to generate a profit. The company’s operating profit does not include its Chinese joint ventures, which are accounted for as financial result. VW more than doubled net cash flow from the automotive division in the third quarter, to €6.2bn.
Third-quarter earnings were largely robust, but “profitability in all divisions was behind VW’s closest peers, certainly raising questions about the group’s effectiveness to lower fixed costs”, Sanford Bernstein analyst Arndt Ellinghorst said in a note. Jefferies rated the company’s performance “solid”, though “relatively muted” in the context of the sector recovery.
VW’s key stakeholders will gather for a closely watched supervisory board meeting in November to review the group’s rolling five-year investment plan, which is set to reflect tighter budgets after the pandemic worsened global economic woes. A push by CEO Herbert Diess to focus the industrial giant more on its main VW, Audi and Porsche brands has increased pressure on its smaller nameplates.
Bugatti has stopped plans for a new model and might be sold to Croatian electric-car specialist Rimac Automobili doo, in which Porsche holds a 15.5% stake, people familiar with the matter said in September. But VW’s powerful labour leader and supervisory board member Bernd Osterloh pushed back against renewed speculation over a sale of the Ducati motorbike brand. A previous effort was shot down by unions and VW’s Porsche and Piech owner family three years ago.
Volkswagen’s portfolio review “isn’t finalised”, CFO Frank Witter told reporters during a call, declining to be more specific. He said that any potential decisions regarding the Bugatti and Bentley brands probably won’t be taken in 2020.
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