Robust China car sales give Volkswagen a turbo boost

German car giant posts a $3.8bn operating profit in the third quarter after a loss in the previous three months, but more virus lockdowns could choke off the recovery.

Volkswagen ID4 production line [Bloomberg]
Electric cars such as the ID.4 sports utility vehicle are likely to become an increasingly important part of Volkswagen's product range in the coming years [File: Krisztian Bocsi/Bloomberg]

Volkswagen AG returned to a profit in the third quarter, mirroring upbeat results of peers including Daimler AG and Tesla Inc. as robust demand in China helped the car industry navigate the fallout from the Covid-19 pandemic.

Operating profit before special items came in at 3.2 billion euros ($3.8 billion), rebounding from a loss in the second quarter, the company said Thursday in a statement. Volkswagen also reported better-than-expected sales in the three months through September.

The world’s bestselling automaker 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, including 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 upbeat results add to growing evidence that the auto industry has dealt with the pandemic better than feared. Carmakers from Ford Motor Co. to BMW AG and Fiat Chrysler Automobiles NV reported better-than-expected results in the past weeks. Toyota Motor Corp. earlier Thursday said its global sales rose 2% in September from the same month last year, spurred by strong demand in China and the U.S.

Virus Threat

But 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 rapid 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 Volkswagen after it rolled out critical models including the latest Golf hatchback and started delivering the all-electric ID.3 to customers last month. Success of the ID.3 and its upcoming SUV sibling, the ID.4, is vital to jumpstart Volkswagen’s electric-car push, the industry’s biggest, following 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.

Volkswagen stuck to its outlook from April that saw global deliveries, revenue and operating profit falling “severely” this year, but the manufacturer still expects to generate a profit. The company’s operating profit doesn’t include its Chinese joint ventures, which are accounted for as financial result.

Key Meeting

“With a solid residual value trend, sharply increasing electric-vehicle sales and the busiest pipeline in the industry, we see VW as best positioned to outperform over the next 12 months,” UBS Group AG analyst Patrick Hummel said on Oct. 26. Further upside could come from additional cost-cutting initiatives and potential restructuring of the group’s niche brands, he said.

VW’s key stakeholders will gather for a closely-watched supervisory board meeting next month to review the group’s rolling five-year investment plan, which is set to reflect tighter budgets after the pandemic exacerbated global economic woes. A push by Chief Executive Officer 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 labor 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.

Source: Bloomberg