Turning the corner of the coronavirus, Volkswagen’s profits decline less than feared

BERLIN / LONDON / FRANKFURT (Reuters) – Volkswagen’s profits nearly halved last year due to the impact of the pandemic, but a rebound in China’s premium car sales and stronger fourth-quarter deliveries helped maintain world’s largest car manufacturer in black.

The group said operating profit on Friday, excluding costs related to its diesel emissions scandal was € 10 billion ($ 12.2 billion), up from 19.3 billion in 2019.

Analysts had expected an operating profit of 4.8 billion euros, according to data from Refinitiv Eikon.

Net cash flow in its automotive division was around € 6 billion, and car deliveries increased towards the end of the year, the German group said in a statement.

“The breadth of pace is welcome and supports upcoming full-year results across the industry,” Jefferies analysts wrote in a statement.

The performance closes a turbulent 2020 for Volkswagen and the automotive industry. A downturn in sales fueled by a pandemic led to a loss in the second quarter before Volkswagen returned to profitability in the third quarter in the wake of growing demand for luxury vehicles in China, the world’s largest auto market.

Shares in Volkswagen reached their high in 11 months after the earnings release on Friday. They rose 2.7% to € 166.4 in the early afternoon of trading.

Major shareholder Porsche Automobil Holding SE, which owns 31.4% of Volkswagen and 53.1% of the group’s voting rights, said it is likely to post a significantly positive profit after tax for 2020 thanks to the performance of Volkswagen.

Volkswagen’s Traton SE truck production unit also reported full-year adjusted operating profit of € 135 million, far better than a € 625 million loss forecast by analysts. Traton said sales “continued to recover strongly in the fourth quarter”.

Volkswagen sales rose 1.7% in December, at a time when new car registrations in Europe fell by nearly 4%, data from demonstrated the European Association of Automobile Manufacturers.

Volkswagen and its rivals still face challenges from the pandemic, including a global shortage of chips needed for production and ongoing shutdowns in various markets to fight the epidemic, meaning 2021 will be another tough year.

It also faces stiff competition in the development of electrified and self-driving cars. The merger of Fiat Chrysler and Peugeot-owning PSA to create the world’s fourth largest carmaker, Stellantis, increases the pressure.

Volkswagen said Thursday it missed EU carbon dioxide (CO2) emissions targets from its passenger car fleet last year and faces a fine of over 100 million euros.

The group is expected to release detailed data for 2020 on March 16.

Reporting by Kirsti Knolle, Nick Carey and Christoph Steitz; Editing by Maria Sheahan, Mark Potter and Susan Fenton