Volkswagen defies diesel and cartel scandals with strong Q3 earnings
Friday, October 27, 2017 2:18:00 PM ET
The crisis-stricken German carmaker
Volkswagen has surpassed analysts expectations on Friday with
surprisingly strong earnings figures for the third quarter (Q3) of
Operating profit in Q3 rose by 15 percent compared to the same
period last year to 4.3 billion euros (4.98 billion dollars).
Despite ongoing scandals, the Wolfsburg-based firm was hereby able
to benefit from successful cost reduction measures, as well as a
strong rise in sales in the U.S., South America and Eastern
Even after accounting for funds put aside to deal with the
legal fallout of the diesel emissions cheating scandal, Volkswagen
still recorded an operating profit of 1.7 billion euros.
Chief Financial Officer Frank Witter told press that the
earnings of the first nine months gave Volkswagen "a lot of
confidence" with view to the full years results. "This is a
strong foundation on which we can build", a statement by Witter
Traders greeted the news euphorically, leading Volkswagen
shares to leap by three percent as they led the DAX stock
exchanges rally on Friday.
Analysts identified the strong Q3 earning figures as the
delayed fruit of corporate management decisions during the past
years. "Volkswagen is a firm that appears to need a long run-up
period" said Marc-Rene Tonn of the Bank M.M. Warburg.
According to Tonn, Volkswagen was increasingly reaping the
rewards of cost-saving measures, as well as attempts to become
more efficient by using identical vehicle parts across the
Volkswagen Groups numerous brands. As a consequence, the flagship
brand Volkswagen had doubled its operative return from 1.5 percent
in Q3 2016 to 3.8 percent this year.
Arnd Ellinghorst, head of global automotive research at the
investment firm Evercore ISI, pointed out that Volkswagen had
already paid 17.5 billion euros in settlements related to the
"dieselgate" scandal. Ellinghorst argued that the fact the firm
retained net liquidity of 25.4 regardless of these costs was
"simply amazing". He further voiced confidence that Volkswagen
still had substantial potential to create a more efficient
Stefan Bauknecht, Chief Stock Analyst at Deutsche Banks Asset
Management branch, was similarly impressed by Volkswagens
management. "I would not have thought that the Cash-Flow would
develop so strongly, especially against the background of recent
costs of 2.5 billion caused by Dieselgate" Bauknecht said.
Nord LB analyst Frank Schwope warned however that the
Wolfsburg-based concern may still discover an urgent need to draw
down its large cash reserves if presented with additional fines in
the "dieselgate" scandal.
Including fines as well as compensatory investments in electric
mobility, Volkswagen has already had to set aside 25.2 billion
euros in the U.S. alone to resolve the diesel emissions cheating
Nevertheless, Schwope estimated that the final cost could
ultimately rise as a high as 35 billion euros. Furthermore,
Volkswagen could face expensive additional anti-trust as a
consequence of the European Unions running investigation into
allegations of illegal industry collusion between German carmakers
during the 1990s.