Volkswagen (VWAGY) reported weak third-quarter results on Wednesday, another sign that major automakers are reeling from softening global demand and competition from Chinese automakers.
For the third quarter, Volkswagen reported operating profit that fell 42% to 2.86 billion euros ($3.1 billion), although revenue fell only 0.5%. More worrying was the operating margin which fell to 3.6%, from 6.2% a year ago, with global deliveries falling 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 such as BYD (BYD) and Li Auto (flax).
The results so far “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.
“The Volkswagen brand reported an operating margin of just 2% after nine months. This underlines the urgent need for significant cost reductions and efficiency gains,” he said.
Volkswagen maintained its 2024 guidance, which was cut just last month. VW said it expects net cash flow from automotive operations to be around 2 billion euros, up from 2.5 billion to 4.5 billion euros previously, with revenue falling 0.7% to 320 billion euros ($356.7 billion).
Volkswagen also maintained its profit margin forecast of around 5.6% in 2024, down from a previous estimate of 6.5%-7%.
In China, sales fell 12% year-on-year, reflecting weaker demand for its products versus competitors. To support its operations in China, VW said earlier this year that it would cooperate with China’s XPeng (XPEV) to produce two new Volkswagen-branded electric vehicles powered by XPeng’s software and EV engineering.
Volkswagen’s premium brand Audi also announced this year that it had signed an agreement with China-owned SAIC to develop new EVs for the continent.
Bank of America analyst Horst Schneider believes VW is selling electric vehicles at a loss in China until its new XPeng-designed EVs arrive.
“Volkswagen is [selling EVs at a loss] because they say we have a new strategy for China, which is called ‘In China for China,’” Schneider wrote in a note to investors earlier this month. “They want to implement it in the first vehicles in 2026/27, and until 26/27 Volkswagen has to somehow survive in the market, and that means they basically accept losses… And then [by 2027] they try to gain market share [with new EVs].”
Meanwhile, the company is implementing a $10 billion cost-cutting program that could include closing at least three VW plants in Germany. VW is in talks with IG MetallGermany’s largest car union, which is fighting the closures. VW also confirmed that it will shut it down Audi EV factory in Brussels due to low sales.
Volkswagen isn’t the only automaker stuck with softening demand and sales. Rival luxury Mercedes-Benz saw its revenue fall by 65% compared to a year ago, and Ford’s (F) shares sank after it led on the low end of earnings guidancewith EV costs weighing on the results. Ford CEO Jim Farley has repeatedly warned of China’s EV dominance and its consequences for Western automakers.
However, German-traded Volkswagen shares are higher today after Wednesday’s results were better than expected and cost-cutting plans could put VW back on track.
“For companies like Volkswagen, we’re a little more bullish, just because we think there’s a lot of restructuring,” BofA’s Schneider said. “There may also be some positives in ’25/’26 that basically these restructuring efforts show some benefits and earnings then improve, particularly for Europe.”
Pras Subramanian is a reporter for Yahoo Finance. You can follow it X and so on Instagram.
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