"Porsche's electric strategy" fails + tariff impact, Volkswagen unexpectedly loses 1.3 billion euros in Q3 | Financial report insights

Europe's largest automaker, Volkswagen Group, reported a net loss of €1.3 billion in the third quarter, marking a difficult period for the German automotive giant amid multiple pressures from electrification transformation, weak market demand, and automotive tariffs.

On October 30, Volkswagen Group's latest financial report revealed that in the third quarter, it was forced to recognize a total of €5.1 billion in impairment and write-down expenses, primarily due to Porsche's overly optimistic electric vehicle strategy failing to materialize, which also affected the Audi brand. U.S. tariff measures added extra pressure on Volkswagen's most profitable brands, further dragging down performance.

Excluding related expenses, Volkswagen's operating profit margin in the third quarter was 5.4%, while the profit margin including expenses was negative 1.6%. This performance highlights the structural challenges Volkswagen faces: the pace at which European consumers are shifting to electric vehicles is slower than expected, and sales in the Chinese and U.S. markets are declining, with weak demand recovery leading to overcapacity for Volkswagen Group.

Chief Financial Officer Arno Antlitz stated in a statement that Volkswagen will "strictly implement" cost-saving measures and remain open to new approaches, focusing on effectively leveraging scale advantages and better exploiting internal synergies within the group.

Porsche's Electric Strategy "Backfires" + Tariff Impact

The €5.1 billion in impairment and write-down expenses this quarter primarily stemmed from Porsche's overly optimistic estimates regarding the demand for luxury electric vehicles. Porsche previously overestimated the affluent class's demand for luxury electric vehicles and had to adjust its strategic direction. This strategic misstep also affected Audi's performance.

According to reports, CEO Oliver Blume will end his dual CEO position at Porsche following the shift in Porsche's electric strategy but will continue to serve as the head of Volkswagen Group. Michael Leiters, who has held leadership positions at McLaren Automotive Ltd. and key roles at Ferrari and Porsche, will take over as Porsche CEO in January next year.

U.S. tariff measures pose additional burdens on Volkswagen's most profitable brands. This external pressure exacerbates the already severe operating environment for Volkswagen Group, as high-end brands like Porsche face challenges in their electrification transformation, while tariff costs further squeeze profit margins.

Europe's Electrification Transformation Below Expectations

The core challenge facing Volkswagen stems from the slower-than-expected pace at which European consumers are transitioning to electric vehicles. This slow transformation, combined with weak demand recovery post-pandemic, has led to expensive overcapacity issues for Volkswagen Group. Meanwhile, declining sales in the Chinese and U.S. markets add further strain.

However, Volkswagen has made some positive progress in the Western European market. In the first three quarters of this year, deliveries in Western Europe and South America increased enough to offset declines in the Chinese and U.S. markets. New orders in Western Europe surged by 17%, with over one-fifth coming from electric vehicles.

This indicates that the series of new models and more attractive electric vehicle options launched by Volkswagen are beginning to take effect.

Notably, to alleviate the burden, Blume has implemented several measures, including scaling back electric vehicle battery manufacturing plans and internal software development.

In order to catch up with competitors in China and increase its market share in the United States, Volkswagen has established partnerships with XPeng and Rivian Automotive Inc.

In the domestic market, the restructuring agreement reached by Volkswagen with union leaders of Volkswagen, Audi, and Porsche also aims to achieve cost savings.

According to Bernstein analyst Stephen Reitman, the net cash flow from the automotive business, a key indicator of financial health, exceeded expectations. The improvement in cash flow is attributed to better working capital management, reduced inventory, and lower capital expenditures.

At the same time, Volkswagen warned that sufficient semiconductor supply is needed to achieve its financial goals for this year, suggesting that an impending chip shortage could further drag down the already troubled automotive industry.

Volkswagen stated that it has secured enough components for the coming week to maintain operations at its German plants, but cannot rule out the possibility of production disruptions thereafter. Currently, output has not been affected