Volkswagen stock price slips despite a return to profit

Volkswagen stock price slips despite a return to profit
Written by:
Michael Harris
30th October, 14:30
Updated: 30th October, 17:40
  • Volkswagen reported earnings before tax of approximately €2.4 billion for the third quarter of the year
  • The carmaker swung to a profit after reporting losses of over €1 billion in the first half of 2020
  • VOW stock heading towards a 9% weekly decline in its biggest selloff since July

Shares of Volkswagen (ETR: VOW) slipped about 1% today despite better-than-expected earnings for the prior quarter. 

Fundamental analysis: China facilitates a rebound in sales

The German car giant reported earnings before tax of approximately €2.4 billion for the third quarter of the year, recovering ground after reporting losses of over €1 billion in the first half of 2020.

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While measures against the coronavirus pandemic certainly delivered results, the carmaker’s “business continued to be heavily impacted by the COVID-19 pandemic in first nine months,” said Frank Witter, President and Chief Financial Officer of VW Credit Inc.

The German automaker said its product deliveries plummeted by nearly 19% year-over-year in the first three quarters of 2020, but have recovered to the earlier levels in Q3. A recovery was mainly fueled by a surge in deliveries in China, Volkswagen’s largest single market, which rose by 3% from July through September, compared to the same period last year. 

As markets recovered so did Volkswagen’s financial results and during that period from July to September, the carmaker’s operating earnings of €3.2 billion “clearly returned to positive territory.”

Referring to the full fiscal 2020, the largest German carmaker said it estimates sales revenues to be “severely lower than in previous year” but stay in “positive territory.” Since Covid-19 have largely affected the company’s operations, Volkswagen said its vehicle deliveries would be much lower compared to last year. 

After the earnings report, shares of Volkswagen were trading about 2.5% in the green in late trading on Thursday.

The company’s return to profitability comes in the midst of a resurgence in coronavirus cases in Europe, which resulted in the reintroduction of strict national lockdowns in Germany and France on Wednesday.

Technical analysis: Big weekly move lower

Volkswagen share price is trading at around the €144.00 mark, which is about 0.8% lower on the day. Still, the positive earnings report couldn’t help erase weekly losses to push VOW to a  9% weekly decline in the biggest selloff since July. 

Volkswagen daily chart (TradingView)

The price action is now approaching the area where strong support lines are located – the 50% Fibonacci retracement at €131.3, a horizontal support line at €128.00, as well as €124.00 – the key Fibonacci retracement line of 61.8%. 

Summary

The German automaker Volkswagen announced third-quarter earnings before tax of around €2.4 billion, marking a sharp recovery after reporting losses of more than €1 billion in the first half of this year, but still not enough to prevent shares from tumbling this week. 

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