VW Scraps Forecast After Virus Shuts Factories, Crimps Sales

(Bloomberg) --

Volkswagen AG abandoned its full-year outlook after the coronavirus pandemic brought sales and vehicle production to a halt in key markets including China and Germany.

“It is currently not possible to determine when a new outlook can be made for the full year,” the world’s biggest carmaker said Thursday in a statement that also provided preliminary first-quarter results. The impact of the health crisis on customer demand, the supply chain and production cannot be accurately forecast, it said.

The manufacturer had targeted global vehicle deliveries on a par with last year, revenue growth of as much as 4% and an operating profit margin between 6.5% and 7.5% excluding special items.

Industrial companies around the world have withdrawn or cut earnings projections for this year after the virus outbreak spread from China to Europe and North America, forcing plant shutdowns across regions as well as showrooms and dealerships in many countries. Transport restrictions have also disrupted supply chains and health concerns for workers have forced companies to put in place new measures such as social distancing before sites can be reopened.

Tough Quarter

VW group first-quarter operating profit is expected to slump 81% to 900 million euros ($979 million), according to the statement. Turbulent financial markets and raw materials prices caused a 1.3 billion euro hit triggered by commodity derivatives and currency effects.

Audi, the group’s biggest earnings contributor, eked out 15 million euros in profit in the first quarter and an operating margin of just 0.1%. At rival Daimler AG, Chief Financial Officer Harald Wilhelm said last week that Mercedes-Benz -- the world’s bestselling luxury-car maker -- will probably manage to remain profitable in the first three months despite the industry gloom.

VW’s automotive net cash flow swung to a negative 2.5 million euros, as the manufacturer was forced to shut production -- first at plants in China, its biggest market, and then across other regions. The company employs about 470,000 workers in its European home turf.

VW CFO Frank Witter warned on March 17 earnings might fall by at least 50% in the first three months. The company on Wednesday mapped out plans to restart production outside China in coming weeks, taking lessons from the earlier experience in its biggest sales region that accounts for roughly half of global vehicle deliveries.

China Rebound?

Net liquidity declined to 17.8 billion euros from 21.3 billion euros at the end of last year, “but remains ample in the near term,” Bloomberg Intelligence credit analyst Joel Levington said in a report. “Continued investments in electrification during the pandemic may enhance Volkswagen’s business model when better days eventually arrive,” he said.

VW preferred shares were up 2% at 3:05 p.m. in Frankfurt on Thursday. They have lost 33% since the beginning of the year, valuing the manufacturer at 63.6 billion euros.

The Chinese auto market could rise as much as 14% in the second half of this year as pent-up demand and economic stimulus lure buyers back to showrooms, according to Bloomberg Intelligence estimates. This could trim the market’s full-year decline to about 6%. VW has returned production in China to between 70% and 80% of pre-outbreak levels.

©2020 Bloomberg L.P.