Volkswagen AG’s Chinese joint ventures swung to a loss in the first nine months, sharpening Chief Financial Officer Arno Antlitz’s push for cost cuts as a market that long powered the carmaker’s earnings deteriorates.
VW’s Chinese joint ventures posted an operating loss of €113 million ($126 million) in the first nine months, compared with a €744 million profit a year earlier for the equity-accounted units, the company said October 29. The reversal underscores how rapidly a market that bankrolled Volkswagen’s global expansion for decades has turned into one of its biggest strategic headaches.
“We must not lose any time and need to act quickly and decisively,” Antlitz said. The shares rose 1.2% at 10:22 a.m. in Frankfurt trading October 29, reversing an earlier decline. The stock is down by a third this year.
The slump in China compounds pressure across the rest of the business. Volkswagen is being hit by U.S. tariffs, new Chinese competitors in Europe and the lower profitability of electric vehicles, while it needs to keep spending heavily on software, batteries and new models. Europe’s biggest carmaker is pursuing efficiency measures aimed at generating about €31 billion in savings.
Speaking on an investor call, Antlitz said Volkswagen’s growing electric-vehicle sales are also weighing on profitability because the company still earns more on combustion-engine models. Battery-electric vehicles, such as the new ID. Polo, now account for about 40% of Volkswagen’s European order book.
The shift will pressure margins in the fourth quarter and into next year, Antlitz said. He expects EV profitability to lag combustion-engine cars until around 2030.
EVs are taking off in Europe just as most incumbent manufacturers have reversed course on ambitious rollout plans, prompting record writedowns. As buyers choose battery power over gas in response to record prices, nimble Chinese competitors led by BYD Co. and Chery Automobile Co. with attractive EV lineups are winning out.
Smaller rival Renault SA has so far weathered that shift better, reaffirming guidance on October 29 for an operating margin of around 5.5%, and saying that electric vehicles helped its product mix. That compares with VW’s margin forecast of no more than 1% for this year.
For the third quarter, VW reported an operating loss of €5.86 billion, slightly worse than analyst expectations. The loss largely reflected writedowns and restructuring charges announced last month, but the underlying performance also exposed the scale of the challenge facing management.
Excluding roughly €10 billion of writedowns and restructuring charges, Volkswagen’s underlying operating margin was just 3.8% after nine months, a level Antlitz said was too low to fund the company’s future. It’s targeting returns of between 8% and 10% by 2030.
Antlitz said Volkswagen now needs to accelerate measures already laid out in its restructuring plan, including reducing model complexity, lowering vehicle and overhead costs and making factories more efficient. The task has become more urgent as group sales in China fell nearly 40% in the third quarter, eroding the earnings cushion that once helped compensate for high costs elsewhere in the business.
Volkswagen’s peers are also confronting a structural reset in the world’s biggest car market. This week, Mercedes-Benz Group AG said it’ll recast its business in China, after Volvo Car AB Chief Executive Officer Hakan Samuelsson said the opportunity to sell western-developed cars in China was “gone.”
At the same time, Volkswagen is trying to strengthen its position elsewhere. Over the weekend, VW’s premium Audi brand outlined plans to build its first factory in the U.S., at a projected cost of $4 billion, after sales there slumped partly because of steep tariffs. While BMW and Mercedes operate U.S. factories, Audi has no plant there, and has relied on imports, including from Mexico.
