Volkswagen Returns To Profit But Slips Behind Rivals.
“The results were solid, but beats delivered by the competition were even bigger”
For any auto manufacturer to report any profit at all in this coronavirus inflicted world has to be impressive, but Volkswagen disappointed investors with its latest financial report which analysts said showed it was recovering at a slower pace than its rivals.
Investors were nervous after VW lost approaching $1 billion in the virus-damaged first half of 2020, but it reported a return to profitability in the third quarter, thanks to an improved performance from its massive stake in China, and its harsh cost cutting policy.
VW announced Thursday it posted an operating profit before special items of €3.2 billion ($3.75 billion) in the 3rd quarter and reiterated its forecast that 2020 as a whole would be profitable, but much lower than 2019’s.
Initially, investors seemed happy enough, as VW shares advanced just over 1% to €135.1, compared with the STOXX 600 industry index which was up 0.7%.
“The results were solid, but beats delivered by the competition were even bigger,” said investment bank UBS analyst Patrick Hummel.
Ford Motor, Fiat Chrysler Automobiles, Renault and Groupe PSA have already reported results.
Bernstein Research agreed.
“Profitability in all divisions was behind VW’s closest peers, certainly raising questions about the group’s effectiveness to lower fixed costs,” said Bernstein analyst Arndt Ellinghorst.
Questioning underlying quality
“Investors will certainly ask questions regarding the underlying quality of earnings. We understand that current times are unprecedented, and that VW is launching a ton of EV (electric vehicle) products. However, the company needs to be measured against its relevant peers which are dealing with similar issues and yet show more effectiveness in addressing their cost bases,” Ellinghorst said.
Norddeutsche Landesbank Girozentrale (NLG) analyst Frank Schwope said VW will deliver more than 300,000 EVs this year (mainly the new ID.3), and over 600,000 next year which puts it into Tesla territory. But although this will look good in image terms it won’t help the bottom line.
“Neither of them will make a profit on electric cars in 2021,” Schwope asserted.
Schwope also worried that the current round of European coronavirus lockdowns will likely continue to spook the industry until the summer next year.
VW’s brands include its own name outlet, Audi, Porsche, Lamborghini, SEAT and Skoda.