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Chinese demand helps Volkswagen return to profit

Kumutha Ramanathan
·Contributor
·2-min read
The VW Logo is reflected in a new Volkswagen (VW) ID.3 electric automobile at the headquarters of German car maker Volkswagen in Wolfsburg on October 26, 2020. (Photo by Ronny Hartmann / AFP) (Photo by RONNY HARTMANN/AFP via Getty Images)
Volkswagen is remaining cautiously optimistic about its outlook. Photo: Ronny Hartmann/AFP

Volkswagen AG (VOW3.DE) has returned a profit in the third quarter, largely led by strong demand in China.

The German automaker was able to transcend the impact of COVID-19 through its large footprint in the Asian country, where sales have returned to pre-crisis levels.

The operating profit before special items turned positive for the quarter at €2.4bn (£2.2bn), though it was €12.4bn lower than the previous year.

Despite the world’s bestselling automaker saying it was “heavily impacted” by the pandemic in the first nine months of 2020, it also reported better-than-expected sales in the three months through September.

This meant that the “declines in deliveries, sales revenue and profit as of the end of September were significantly more moderate than at the half-year mark,” VW said in a statement on Thursday.

As a result, the business engaged in worldwide countermeasures, including cutting costs, securing liquidity and decreasing the funds tied up in working capital, which led to the improvements in its latest earnings report.

The business is remaining cautiously optimistic about its outlook.

“Challenges will also arise particularly from the increasing intensity of competition, volatile commodity and foreign exchange markets and more stringent emissions-related requirements” VW said.

READ MORE: European markets recover as governments struggle to contain COVID-19

“The sales revenue of the Volkswagen Group is expected to fall significantly below the previous year’s level as a result of the COVID-19 pandemic. Overall, the Volkswagen Group anticipates the operating result for 2020 before and including special items to be severely lower than in previous year; however, in positive territory.”

Volkswagen’s upbeat results suggest that the auto industry has been able to get through the global health pandemic better than analysts had expected. Yet, a second wave of surging cases and tightening lockdown restrictions in its home market of Germany and throughout Europe could undermine a full recovery.

Carmakers, such as Ford Motor Co (F), BMW AG (BMW.DE) and Fiat Chrysler Automobiles NV (FCAU), also reported better-than-expected results in the past week.

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