Volkswagen expects to avoid 2020 loss despite severe hit from pandemic

Volkswagen expects its operating profit to remain positive as the world’s largest automaker takes steps to cut spending amid the coronavirus pandemic.
By : Bloomberg
| Updated on: 29 Apr 2020, 11:53 AM
Employees work on an assembly line as the Volkswagen construction plant reopens after closing down last month due to the coronavirus disease (COVID-19) outbreak in Bratislava, Slovakia April 28, 2020. REUTERS/Radovan Stoklasa (REUTERS)
Employees work on an assembly line as the Volkswagen construction plant reopens after closing down last month due to the coronavirus disease (COVID-19) outbreak in Bratislava, Slovakia April 28, 2020. REUTERS/Radovan Stoklasa (REUTERS)
Employees work on an assembly line as the Volkswagen construction plant reopens after closing down last month due to the coronavirus disease (COVID-19) outbreak in Bratislava, Slovakia April 28, 2020. REUTERS/Radovan Stoklasa (REUTERS)
Employees work on an assembly line as the Volkswagen construction plant reopens after closing down last month due to the coronavirus disease (COVID-19) outbreak in Bratislava, Slovakia April 28, 2020. REUTERS/Radovan Stoklasa

Volkswagen AG expects profit to drop “severely" this year after the fallout from the coronavirus pandemic forced factory stoppages and hit demand in key sales markets from China to the U.S.

Operating profit is expected to remain positive as the world’s largest automaker takes steps to cut spending, Volkswagen said Wednesday in a statement. The company expects significant drops in deliveries and sales.

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“The Volkswagen Group is steering through this unprecedented crisis with focus and determination," Chief Financial Officer Frank Witter said in the statement. “We’ve taken numerous countermeasures to cut costs and ensure liquidity, and we continue to be robustly positioned financially."

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(Also read: Coronavirus impact: Volkswagen takes the digital route to sell cars in India)

VW had abandoned its earnings outlook earlier this month. The company initially targeted global vehicle deliveries on par with last year’s level, revenue growth of as much as 4% and an operating profit margin between 6.5% and 7.5% excluding special items.

Key Insights

  • First-quarter operating profit slumped 81% to 900 million euros ($977 million), in line with preliminary numbers published on April 16. Net liquidity stood at 17.8 billion euros after the first three months.
  • VW started to gradually ramp up output at its largest factory in Wolfsburg on Monday, after reviving production at its Slovakian site in Bratislava and electric-car assembly in Zwickau, Germany, last week.
  • Production plans drafted by global automakers face a large degree of uncertainty as demand for cars remains difficult to predict. As lockdown restrictions loosen, showrooms are reopening in several countries, but with jobs at risk due to the economic fallout consumer confidence is shaky.

Market Reaction

  • VW’s preferred shares are down 28.5% since the beginning of the year, valuing the manufacturer at 66 billion euros. While stocks of traditional automakers suffered badly across the board, shares in electric-car leader Tesla Inc. proved more resilient to the industry’s gloom. The U.S. manufacturer’s stock is up 84% year-to-date.

First Published Date: 29 Apr 2020, 11:53 AM IST
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