Volkswagen (VWAGS) reported lackluster results for the third quarter on Wednesday, another sign that major automakers are struggling with 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), even as sales fell only 0.5%. More worryingly, operating margin fell to 3.6%, down from 6.2% a year ago, with global deliveries down 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 waning demand. And in China, its joint ventures are under pressure from domestic automakers such as BYD (DWELLING) and Li Auto (IF).
The results to date “reflect the challenging market environment and underline the importance of delivering on the performance programs we have launched across the group,” Volkswagen Group CFO and COO Arno Antlitz said in a statement.
“Volkswagen Brand posted an operating margin of only 2% after nine months. This highlights the urgent need to significantly reduce costs and increase efficiency,” he said.
Volkswagen maintained its full-year 2024 outlook, which was cut last month. VW said it expects net cash flow from automotive operations of around 2 billion euros, down from 2.5 billion to 4.5 billion euros previously, with sales 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% to 7%.
In China, sales fell 12% year-on-year, reflecting weaker demand for its products versus competitors. To bolster its China operations, VW said earlier this year that it did will be a partner of the Chinese XPeng (XPEV) to produce two new Volkswagen-branded electric vehicles powered by XPeng software and electric car engineering.
Volkswagen’s premium brand Audi also announced this year that it did signed an agreement with China’s state-owned SAIC development of new electric cars for land.
Bank of America analyst Horst Schneider believes VW is selling electric vehicles at a loss in China until its new XPeng-designed electric vehicles arrive.
“Volkswagen is [selling EVs at a loss] because they say we have a new China strategy in place called ‘In China for China,’” Schneider wrote in a note to investors earlier this month. “They want to implement it in the first cars in 2026/27 and by 2026-27 Volkswagen has to somehow survive in the market, which means that they basically accept losses… And then [by 2027] trying to gain some market share [with new EVs].”
Meanwhile, the company is rolling out a $10 billion cost-cutting program that may include closing at least three VW plants in Germany. VW is in interviews with IG Metallthe largest car union in Germany, which is fighting against closure. VW has also confirmed it will close its Audi EV plant in Brussels due to lackluster sales.
Volkswagen isn’t the only automaker stuck with softening demand and sales. A luxury rival Mercedes-Benz sees profit fall by 65% compared to a year ago and Ford’s (F) shares fell after hitting the lower end of its earnings outlookwith the results weighted by the cost of electric cars. Ford boss Jim Farley does has warned time and time again about China’s dominance of electric cars and its implications for Western car companies.
Still, Volkswagen shares traded higher in Germany today as Wednesday’s results were better than expected and cost-cutting plans may finally get VW back on track.
“We’re a little bit more bullish on companies like Volkswagen because we think there’s a lot of restructuring going on,” BofA’s Schneider said. “There could also be some upside in 25/26, that basically these restructuring efforts are showing some benefit and then earnings will also improve, particularly for Europe.”
Pras Subramanian is a Yahoo Finance reporter. You can follow him X and on Instagram.
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