Volkswagen Earnings: Revenue Posts Solid Gain, but Margin Results Mixed as Chip Crunch Lessens

No-moat Volkswagen VOW reported second-quarter earnings per share of EUR 6.48, missing the EUR 7.66 FactSet consensus by EUR 1.18 and down EUR 0.98 from the EUR 7.46 reported last year. Even so, consolidated revenue jumped 15% to EUR 80.1 billion from EUR 69.5 billion a year ago, slightly above consensus by EUR 100 million. Industrial revenue increased 16% on strong pricing, mix, and volume partially offset by continued but lessening chip shortage disruption and negative currency effect, while consolidated deliveries increased 18% to 1.6 million versus 1.3 million last year when the chip crunch was much worse.

Second-quarter group adjusted EBIT of EUR 5.6 billion rose 19% from EUR 4.7 billion last year, while margin expanded 200 basis points to 7.0%. Strong year-over-year margin improvement at Seat, vans, components, Traton and Man Energy were partially offset by supply chain disruption and inflationary cost pressures at Volkswagen brand and Skoda, as well as mounting losses at Cariad (software group) and battery group for a 6.4% industrial EBIT margin versus 5.1% last year. Financial-services-adjusted EBIT dropped 47% to EUR 775 million from EUR 1.5 billion a year ago due to higher interest rates. Group EBIT missed consensus by 6%.

Management’s largely unchanged 2023 guidance includes deliveries of 9.0 million-9.5 million vehicles (down slightly from ‘about 9.5 million), consolidated revenue of EUR 307 billion-EUR 321 billion, and group adjusted EBIT of 7.5%-8.5%. We estimate volume at 9.4 million and consolidated revenue of EUR 314 billion. We assume 7.5% margin as high uncertainty from industry headwinds remain in 2023. The time value money added EUR 6, raising our fair value estimate to EUR 344 from EUR 338. The 5-star-rated ordinary shares trade at a compelling 57% discount to our new fair value estimate, while the preferred shares are more attractively valued at a 65% discount.