German carmaker weathering slowdown in China better than most of its peers
FRANKFURT • Volkswagen AG (VW) shares advanced the most in five months after first-quarter (1Q) profit rose and the German carmaker stuck to annual earnings goals despite a global market slowdown and rising legal costs.
The stock jumped as much as 5.2% yesterday after the world’s biggest carmaker’s operating profit rose to €4.8 billion (RM22.22 billion), excluding a €1 billion provision for legal costs.
VW boosted sales of lucrative SUVs, while benefitting from favourable exchange rates and the revaluation of financial instruments that added €400 million to the result.
VW delivered a “surprisingly strong” set of earnings with good results across the VW, Audi and Skoda brands, Citigroup said in a report. VW improved its model mix and cost-saving efforts gained traction, the bank said.
VW is weathering a slowdown in China better than most of its peers. The company said it increased the share in its biggest market, which has contracted for 10 straight months overall amid an economic slowdown and trade tensions with the US.
VW will still meet annual target for vehicle sales and revenue, even after deliveries at Porsche and Audi, its two top profit contributors, declined during the 1Q.
The passenger car business is “very stable”, CFO Frank Witter told reporters yesterday. He added that the carmaker needs to speed the transformation of its business amid growing global economic risks.
That process took a step back in March, when VW shelved a partial share sale of the Traton SE heavy-trucks unit, the centrepiece of a company revamp to become less centralised and boost efficiency.
The move, blamed on market conditions, disappointed investors and came shortly before Swiss train maker Stadler Rail AG completed a successful listing.
A public offering of Traton remains “a desired outcome”, Witter said. Unlocking value still is “a priority” for VW as the company is “tremendously undervalued”, he said, declining to identify how the company is going to lift its valuation.
VW has ventures with SAIC Motor Corp and FAW Car Co Ltd, two of China’s largest manufacturers, after being one of the first foreign automakers to arrive in China more than three decades ago.
VW is also exploring options to acquire a stake in its smaller third partner, Anhui Jianghuai Automobile Group Corp.
Witter said he is “a bit more” optimistic about a demand recovery in China during the second half of the year.
VW expects to boost annual deliveries and revenue slightly despite slowing economic growth, intensifying competition and spending to meet new emissions tests in Europe. The return on sales in the passenger car division is set for 6.5% to 7.5%.
Revenue at the main VW car brand — accounting for about half of global deliveries — rose 7.1%, while operating profit came in at €921 million. This excludes special items of €400 million relating to the fallout from the diesel-emissions cheating scandal.
Overall, costs related to the 2015 revelations VW had rigged as many as 11 million diesel vehicles worldwide to dupe emissions tests have reached €30 billion.
Talks with Ford Motor Co to cooperate on vans, which may extend into joint projects on electric and self-driving vehicles, are progressing well with the “finishing line in sight”, Witter said on a call with reporters. — Bloomberg