Porsche Drags Volkswagen to a €5.8 Billion Loss

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Once again, Porsche is to blame at Volkswagen. The Wolfsburg-based carmaker reported a net loss of about €5.8 billion for the third quarter, after a loss of nearly €1.1 billion in the same quarter a year earlier. Most of it stems from a write-down on its sports car subsidiary. But even beyond that, things are not going smoothly.

The Figures at a Glance

According to the company’s announcement, third-quarter revenue fell 6.3 percent to €75.3 billion. The operating result was minus €5.9 billion. After nine months, operating profit stands at just about €0.1 billion, compared with €5.4 billion a year earlier.

• Revenue (nine months): €233.4 billion, down 2.2 percent
• Earnings after tax (nine months): minus €2.7 billion, after plus €3.4 billion a year earlier
• Deliveries (nine months): about 6 million vehicles, down 9 percent
• Third-quarter deliveries: about 1.89 million vehicles, down 14 percent

The Reasons Behind the Loss

In the third quarter alone, Volkswagen booked special items of €7.8 billion. The main reasons:

• Porsche: A €6.4 billion impairment of goodwill on the sports car and S.U.V. subsidiary. Volkswagen now expects weaker development at Porsche than before, after its China business collapsed and U.S. tariffs and corrections to its electric vehicle strategy weighed on results. The write-down is non-cash but hits earnings.
• China: About €1 billion in impairments on assets of subsidiaries in China. Deliveries in China plunged 38.5 percent in the third quarter to about 406,000 vehicles. Local competition is fierce: China’s market leader BYD now employs more than one million people.
• Restructuring: Costs for the planned sale of the Osnabrück plant and the ongoing group restructuring.
• Electric cars: A higher share of lower-margin electric vehicles and rising price pressure worldwide are also weighing on earnings.

“The nine-month results make one thing clear: We cannot afford to lose any time and must act quickly and decisively,” said Arno Antlitz, Volkswagen’s chief financial officer. The result, he added, is too low to keep investing heavily in the future. With a cost-cutting program of about €31 billion, the company plans to streamline its model range, simplify structures and make its plants more efficient, among other measures.

Guidance Cut

For the full year, Volkswagen now expects an operating return on sales of no more than 1 percent. The company had originally forecast 4.0 to 5.5 percent, and in 2025 it reached 2.8 percent. Revenue is expected to come in at about €315 billion, below the previous year’s €321.9 billion.

The Core Business Still Makes Money

The situation is not quite as bleak as the multibillion-euro loss suggests, however. Excluding special items, Volkswagen posted an operating result of €8.8 billion after nine months, a return on sales of 3.8 percent. Net cash flow in the automotive business more than doubled to €4.4 billion, and net liquidity rose to €33 billion.

There are also bright spots in Europe: Orders rose 4 percent to three million vehicles, and orders for electric cars jumped 39 percent. Electric vehicles now account for about 40 percent of the European order backlog. The stock market therefore did not react badly to the figures, and the shares rose after the release.