VW Profits Dive, But 2018 Forecast Remains Unchanged.
“We are convinced that the market will see VW’s numbers as confirmation of the fundamental strength of VW”
Volkswagen’s 3rd quarter operating profit fell nearly 20% as the company paid the price for failing to meet new European Union rules on fuel efficiency.
VW’s profit guidance for all of 2018 remained unchanged at between 6.5 and 7.5%.
VW profits had been expected to fall even more than the actual 18.6% drop in 3rd quarter adjusted operating earnings of €3.5 billion compared with the same period last year. Analyst’s consensus called for a drop to €3.2 billion.
Unlike may other big European carmakers, VW hasn’t been forced to warn investors it won’t be able to meet promised profit targets.
Volkswagen sales in Western Europe fell 50% in September as overall market sales slid more than 20%. This followed a surge the previous month as Europe’s car manufacturers scrambled to offload vehicles which would fail the tougher September 1 fuel economy standards. VW’s sales fell in September because it couldn’t produce enough vehicles to meet the new standards
This sales roller-coaster is expected to even itself out by the end of the year.
WLTP rules, OK
The new rules – Worldwide Harmonized Light Vehicle Test Procedure or WLTP – were intended to force automakers to be more honest about the fuel consumption of their vehicles.
Investment researcher Jefferies described VW’s 3rd quarter performance as solid, and pointed out that the profit guidance for all of 2018 remained unchanged at between 6.5 and 7.5%.
Investment bank UBS said the performance was surprisingly solid despite the debacle surrounding the WLTP rules.
Investment researcher Evercore ISI, which has pushed the idea that because VW had lagged behind others in finding efficiencies, long term the promised turnaround would be huge, liked the news.
“We are convinced that the market will see VW’s numbers as confirmation of the fundamental strength of VW. The improved China outlook (likely auto tax stimulus) will trigger more interest in the sector and VW should benefit over-proportionately given –
a) this year’s strong relative earnings and cash flow performance
b) the significant opportunity to trim efficiency and
c) a large exposure to China where VW makes 38% of its pre-tax profit,” Evercore ISI analyst Arndt Ellinghorst said in a report.
Bloomberg reported Monday that China was about to slash the sales tax on cars with engines smaller than 1.6 liters to 5% from 10%. U.S. carmakers Ford and GM, and Europeans including VW, BMW and Daimler saw their shares leap after the report.
China’s car market is expected to shrink in 2018 for the first time since 1990.