In the Face of Mounting Competition, Volkswagen's Profits Plummet

Volkswagen reported a decline in its second-quarter profits on Thursday, primarily due to €1 billion ($1.1 billion) in restructuring costs and rising competition from Chinese rivals.

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The world’s largest carmaker saw its revenue increase by 4% in the second quarter of 2024, reaching €83.3 billion, despite a 3% decrease in vehicle sales, largely due to a slump in the Asia-Pacific region.

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Volkswagen's post-tax profits fell by 4%, attributed to rising costs, including an additional €1 billion in restructuring expenses, partly from a severance program initiated in the second quarter.

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The company's performance aligned closely with expectations, with analysts previously predicting earnings before interest and tax (EBIT) of €5.21 billion, compared to the actual €5.46 billion generated.

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Shares of Volkswagen, listed on the Frankfurt Stock Exchange, fell 1% on Thursday and have declined by 23% over the past 12 months.

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The Wolfsburg-based company saw a 0.4% decline in global passenger car sales, with a significant 7.3% drop in China, its largest market, due to intense competition.

In the first half of 2024, Volkswagen reported a 2% decrease in overall vehicle sales, totaling 4.3 million units worldwide.

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Volkswagen, which owns brands including Audi, Porsche, and Skoda, is advancing its "in China, for China" strategy to better tailor its vehicles to the Chinese market.

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In the first half of the year, China accounted for almost a third (32%) of Volkswagen’s vehicle sales. Outside of China, Volkswagen saw an increase in unit sales, driven by higher sales in all regions except central and eastern Europe.

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Citi analysts led by Harald Hendrikse noted that "VW remains a company driven by volumes" and suggested that the company's higher sales outside China make it "attractive at current valuation," especially if further cost reductions are achieved.

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