Interactive Investor

ii view: Volkswagen to suspend production

Despite a progressive 2019, VW shares are down over 35% in 2020.

17th March 2020 15:42

Keith Bowman from interactive investor

Despite a progressive 2019, VW shares are down over 35% in 2020.  

Full-year 2019 results

  • Revenue up 7% to €252 billion
  • Operating profit up 22% to €16.9 billion

Chairman Dr Herbert Diess said:

"The Volkswagen Group brought fiscal year 2019 to a successful conclusion with improved financial results in almost all brands."

ii round-up:

Automotive giant Volkswagen (XETRA:VOW), whose brands include Audi, SEAT, ŠKODA and Lamborghini, reported strong full-year 2019 results. 

But while operating profit jumped by 22%, measures being taken to battle coronavirus completely overshadowed.

In line with rivals PSA Peugeot in France and Italy’s Fiat Chrysler Automobiles (MTA:FCA), VW is now suspending production at factories across Europe given the virus threat to workers and current disruption in supply chains. 

Production will be stopped at its Spanish plants, in Setubal in Portugal, Bratislava in Slovakia and at the Lamborghini and Ducati plants in Italy before the end of this week.

Management noted that “The corona pandemic presents us with unknown operational and financial challenges. At the same time, there are concerns about sustained economic impacts.”

Total China car sales fell by 79% in February. Sales in Italy fell by 9% and are likely to be far worst in March. 

Although little changed following the results, VW shares are down over 35% year-to-date. Ford Motor Co (NYSE:F) shares are down by nearly 50% and the UK’s Aston Martin Lagonda Global Holdings Ordinary Shares (LSE:AML) by over 60%. 

VW, which in recent years has been shaken by an emissions scandal, continued to benefit from improvements in its sales mix and price positioning for its core Volkswagen brand. 

2019 revenue for Volkswagen passenger cars rose by 4.5%.

ii view:

The last few years have been tough for VW. Damage to its reputation following the emissions scandal has been considerable. Fellow car maker Tesla (NASDAQ:TSLA) has also asked questions of the broader industry regarding prospects for electric cars. In what was already a tough backdrop for car manufacturers, the hit from the coronavirus will ask further questions. 

For investors, the potential impact from the coronavirus and the company’s battle to enhance its environmental credentials – moving away from diesel and petrol vehicles – must remain a consideration. The emissions scandal appears to be largely in the rear-view mirror and, in a typical economic cycle, VW's basket of brands helps even out the ups and downs of each. However, these are not normal times, and investors must also consider current volatility and risk.

Positives: 

  • Strong brand names including Audi and Porsche
  • Diversity of brand names

Negatives:

  • Air quality concerns and taxation changes have led to falls in diesel sales
  • Coronavirus disruption to both production and sales

The average rating of stock market analysts:

Buy

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