Volkswagen AG's third-quarter earnings failed to meet analyst expectations, sending its shares to their lowest level since October 2010.
Earnings per share fell to €3.34, below analyst projections of €3.46, marking a 67% year-on-year drop, as the German auto giant continued to lose ground against growing competition, reflecting the scale of challenges the company is facing amid rising costs and slowing demand.
Volkswagen’s revenue of €78.36 billion for the third quarter was slightly above market expectations of €75.7 billion, yet flat compared to the same quarter last year.
The company’s overall sales growth has been hampered by declining global deliveries, which fell 7% in Q3 compared to last year.
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Through the first nine months of 2024, Volkswagen delivered 6.5 million vehicles, a 4% decrease year-on-year, highlighting the effects of increased competition, particularly in its crucial Chinese market.
The company’s operating result for the January-September period slumped to €12.9 billion, a significant 21% drop from €16.2 billion recorded during the same period in 2023.
“Our nine-month results reflect a challenging market environment and underline the importance of delivering on the performance programs we have launched across the Group. Volkswagen Brand reported an operating margin of only two percent after nine months. This highlights the urgent need for significant cost reductions and efficiency gains,” stated Arno Antlitz Chief Financial Officer and Chief Operating Officer at Volkswagen Group.
Earlier this week, Volkswagen’s management announced plans to close at least three factories in Germany and lay off tens of thousands of employees as part of a major restructuring effort.
Cost challenges and restructuring expenses
Volkswagen’s nine-month results were impacted by elevated fixed costs and restructuring provisions.
The automaker recorded €2.2 billion in restructuring expenses this year, with significant costs attributed to restructuring at Battery Cell Group (BGC) and Battery Group Partnerships (BGP). Non-operating factors, including the deconsolidation of VW Bank Russia, added further financial strain.
Net cash flow in Volkswagen's Automotive Division was €3.3 billion, down from €4.9 billion last year, while its net liquidity also decreased to €34.4 billion from €40.3 billion at the close of 2023.
Outlook revised as industry headwinds mount
Volkswagen updated its outlook for 2024, forecasting annual sales revenue to reach around €320 billion, broadly flat compared to the full year in 2023.
The company expects a modest annual net cash flow of approximately €2 billion for its automotive division, sharply down from €10.7 billion in 2023.
The automaker explained that the part of the decline in net cash flow for 2024 is due to expenses of around € 3.5 billion for M&A, of which approximately €2bn is attributable to expenses in connection with the planned joint venture with Rivian.
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Volkswagen faces substantial pressure on multiple fronts. European demand for electric vehicles has softened, eroding potential margins and stalling growth in the company’s EV sector. In its largest market, China, Volkswagen has experienced declining profits in its joint ventures due to fierce local competition, further weighing on its financial performance.
Adding to its challenges, Volkswagen faces potential regulatory costs linked to the EU's tightening CO2 targets for 2025, while geopolitical tensions add uncertainty.
The European Union recently announced potential punitive tariffs on Chinese-made electric vehicles, leading to warnings from China about possible retaliatory tariffs on European car imports, which could affect Volkswagen’s competitiveness in the region.
Market reactions and share performance
Shares of Volkswagen AG fell over 5% to €90 following the announcement, marking a new 24-year low and extending the stock’s year-to-date decline to 23%. Volkswagen's stock has now dropped 75% from its all-time high of €355 per share, reached in March 2021.
“The capital market took a critical view of the fact that investment requirements continued to be high, extending among other things to the construction of battery cell factories, vehicle development as part of the Company's transformation, and provisions for acquisitions,” the company stated in the report.
The market’s reaction underscores investors’ apprehensions about Volkswagen’s ability to sustain profitability amid high investment demands, waning EV sales, and rising costs.
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