Volkswagen Earnings: China and Restructuring Costs Weigh on Profitability

The weakness in no-moat Volkswagen’s third-quarter performance, along with the rest of the European automotive original equipment manufacturers, largely reflects ongoing weakness in China. Deliveries across the rest of the company’s regions showed a solid performance. Average pricing across the group’s segments also held up well. Restructuring costs of EUR 2.2 billion and a decline in equity-accounted investment profits by two thirds—primarily its China joint venture—contributed to the 33% decline in EPS for the group and similar decline in net cash flow for the automotive division for the nine-month period. We make no changes to our fair value estimate of EUR 264 per share with our full forecast for a conservative fourth-quarter result.