Volkswagen AG, Europe’s largest automaker, has found itself in a precarious position following a 64 per cent decrease in quarterly net profit, primarily due to a significant downturn in sales within the Chinese market. The financial strain has prompted the company to announce a drastic restructuring, including the closure of three plants and the potential lay-off of tens of thousands of workers.
The financial reports for the end of September revealed a net profit of €1.57 billion, a stark contrast to the €4.34 billion recorded in the same period the previous year. Revenue experienced a slight decline of 0.5 per cent, amounting to €78.5 billion. The company’s operating profit margin fell significantly from 6.2 per cent to 3.6 per cent.
Shares of Volkswagen have seen a significant decrease, falling by over 20 per cent this year, with morning trading in Frankfurt reporting a decline of more than 3 per cent. The VW brand itself has been particularly affected, with an operating margin drop to 2 per cent in the first nine months of the year. This places the company further from its 6.5 per cent target, as set by the brand’s CEO, Thomas Schäfer, for 2026.
Financial strains and challenging market conditions have underscored the pressing necessity for cost reductions and efficiency improvements, as stated by Arno Antlitz, the company’s Chief Financial Officer. Adding to the company’s woes are ongoing wage negotiations, with unions demanding a 7 per cent wage increase, while management proposes a 10 per cent cut in pay as part of the brand’s radical restructuring plans.
The company has issued two profit warnings this year amidst declining electric vehicle sales in Germany, attributed partly to changes in government purchase subsidies. In addition to the 12 per cent drop in vehicle sales in China, Volkswagen also reported a 1 per cent decline in sales across Western Europe.
Volkswagen forecasts an operating profit of approximately €18 billion for the year, maintaining a projected profit margin of around 5.6 per cent. However, analysts, such as Stephen Reitman from Bernstein, have commented that the underlying margin remains higher than anticipated, despite the €1.2 billion restructuring charges due to the closure of an Audi plant in Brussels. Concerns grow as Volkswagen and other automakers face intensified pressures, especially in the Chinese market, which remains the world’s largest.
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