Volkswagen's Q3 Earnings Slump Amid Supply Chain Woes

• Volkswagen's profits dropped by 7% in the first nine months of the year, largely due to a €2.5bn loss from commodity hedging in the third quarter.
• Supply chain issues, including the flooding in Slovenia that halted suppliers, impacted Volkswagen's manufacturing and third-quarter performance.
• Despite challenges, the carmaker saw a 45% increase in battery electric vehicle deliveries and remains optimistic about its electrification strategy in Europe and China.

Volkswagen Group has said it “cannot be satisfied” with its profitability, as it missed third quarter targets due to hedging losses and supply chain disruption.

Profits declined seven percent in the first nine months of the year, to sit at €16.2bn (£14.1bn).

The German carmaker attributed the development to “negative valuation effects” from commodity hedging, which led to a €2.5bn loss in the third quarter, and lowered its full-year profit margin forecast.

That was despite sales volumes rising eight percent to 6.8m, with sales revenue growth of €235.1bn.

Arno Antlitz, Volkswagen’s chief financial officer, said the company was on a “robust course and had again increased sales volumes and revenues in the third quarter”.

“However, we cannot be satisfied with our profitability, which in the third quarter fell short of our ambitious targets,” added the chief financial officer.

Europe’s biggest carmaker noted problems in the supply chain and warned commodity markets “remain unpredictable”.

Flooding in Slovenia, which forced the closure of its suppliers’ plants for weeks, has also dented third quarter performance and slowed manufacturing in its German factories.

Volkswagen shares dipped earlier this week after a pre-announcement of the fall in third quarter earnings, which sparked concern among analysts. A Citi analyst note read: “We had not expected this magnitude of deterioration.”

“VW blamed production losses from the Slovenia flooding and higher product costs, but this should have been more than offset by 12 percent higher revenues.”

Shares in the German group are trading down 16 percent in the year to date and dipped marginally this morning.

Despite the disruption, Volkswagen said it still expects to deliver between nine to 9.5m vehicles this year, with group sales revenue coming in at 10 to 15 percent.

Critical to its future will be the success of its electrification strategy, in Europe and across China. Deliveries of battery electric vehicles increased by 45 percent to 531,000 in the first nine months, with battery electric share growing 7.9 percent.

By City AM

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