VW returned to profit in third quarter as pandemic recovery continues

Volkswagen Group returned to profitability in the third quarter, helped by a surge in demand in China, despite an overall drop in global vehicle deliveries during the COVID-19 pandemic.

Operating profit before special items was 3.2 billion euros ($3.8 billion), rebounding from a loss in the second quarter, the company said in a statement on Thursday.

Adjusted operating return on sales in its automotive division fell to 5.4 percent from 7.4 percent in the year-earlier quarter, but rebounded from minus 5.8 percent in the second quarter.

The company benefited from a series of cost-cutting measures launched earlier this year to counter the effects of the pandemic. The cost cuts "had as much of an impact as the continuing improvements in the situation in key sales markets," VW said.

VW benefited from its large footprint in China, its biggest market, where deliveries between July and September were up 3 percent on the prior-year period. Globally, the number of vehicles delivered to customers in the third quarter fell 1.1 percent, compared with the same quarter in 2019.

Global deliveries rose 3.3 percent in September, exceeding the level of the same month in 2019 for the first time this year, VW said.

Sales revenue between July and September fell 3.4 percent to 59.36 billion euros.

VW said its net liquidity in the third quarter improved to 24.8 billion euros, up from 18.7 billion at the end of the second quarter.

VW had posted a loss of 1.7 billion euros in the second quarter as it was hit hard by a drop in demand caused by the pandemic, which led to restrictions on movement, economic crises and swathes of job losses globally.

In a note to clients, Jefferies analyst Philippe Houchois described VW's third-quarter results as a "solid performance with strong cash but relatively muted in the context of the auto sector recovery."

VW's return to profitability comes amid spiking coronavirus cases in Europe that lead the French and German governments to order their countries back into strict national lockdowns on Wednesday.

The automaker said while its full-year 2020 profit would still be "severely lower" than in 2019, it would still be in "positive territory."

"The coronavirus remains a central problem," VW Chief Financial Officer Frank Witter said in a conference call with reporters. "This situation now is anything but relaxed."

Witter said that because of market volatility VW would not issue a more specific full-year profit forecast.

In the first nine months, Porsche, the financial services unit and Skoda helped VW Group eke out a profit, while the main VW passenger-car brand continues to make a loss because of lower sales volumes and higher costs related to the diesel-emissions scandal.

VW's key stakeholders will gather for a closely watched supervisory board meeting next month to review the group's rolling five-year investment plan, which is set to reflect tighter budgets after the pandemic exacerbated global economic woes.

A push by CEO Herbert Diess to focus the group more on its main VW, Audi and Porsche brands has increased pressure on its smaller nameplates.

Bugatti has stopped plans for a new model and might be sold to Croatian electric-car specialist Rimac Automobili, in which Porsche holds a 15.5 percent stake, people familiar with the matter said in September.

But powerful VW labor leader and supervisory board member Bernd Osterloh pushed back against renewed speculation over a sale of the Ducati motorcycle brand. A previous effort was shot down by unions and VW's Porsche and Piech owner family three years ago.

Asked on Thursday whether Bugatti, Ducati and other luxury brands still belong to its core business or could be put up for sale, Witter said management "definitely has the one or the other idea" when it comes to streamlining its portfolio.

Bloomberg and Christiaan Hetzner contributed