Will Q3 earnings kick-start the Volkswagen share price?

Having accelerated in the first half of the year, the Volkswagen [VOW.DE] share price has started to tap the brakes recently. Over the past three months, the stock is down more than 10% and 3% in the month so far (through 8 October). The obvious headwind is the semiconductor crisis, which has led to automobile manufacturers slashing production targets.

Yet, Volkswagen’s underlying fundamentals look relatively strong, and with more growth around the corner, the stock could be a strong medium- to long-term investment opportunity, especially with the recent dip in Volkswagen’s share price.

 

When is Volkswagen reporting?

On 28 October.

 

What happened in Volkswagen’s previous earnings?

Second-quarter earnings were something of a bonanza for Volkswagen. Revenues came in at €67.3bn, up from €41bn in the same period last year. Operating results before special items were €6.55bn, a marked improvement on the €2.39bn loss last year. The company delivered 2.55 million vehicles during the quarter, up from 1.89 million in the same period last year.

Volkswagen upped its profit margin for the second time in three months following the results. The company now expects an operating return on sales of between 6% and 7.5%.

“The record result in the first half of the year is clear proof of how strong our brands are and how attractive their products are” - CEO Herbert Diess

 

“The record result in the first half of the year is clear proof of how strong our brands are and how attractive their products are,” CEO Herbert Diess (pictured) said in a statement.

Challenges remain, however, with Volkswagen lowering its delivery target for 2021. Diess has noted a list of headwinds to contend with for the company, including  “competition, volatile commodity and foreign exchange markets, securing supply chains and more stringent emissions-related requirements”.

 

What to look out for in Volkswagen’s Q3 results

Volkswagen is on track to overtake Tesla’s [TSLA] battery electric vehicle (BEV) volume with its electric vehicle transformation by 2023. Batteries could account for 50% of sales by 2025.

Volkswagen is spending €35bn on its transition to electric cars. Last year, the German automobile manufacturer launched its first EV, the ID3, and is expected to launch its first mass-market electric vehicle in 2025 at a starting price of $20,000. Since its launch, the ID3 has received more than 144,000 orders – around 50% from new Volkswagen customers – and was Europe’s best-selling electric car in August 2021. ID3 sales and any update on Volkswagen's electric vehicle production line will be clearly watched.

Anything that risks Volkswagen hitting its EV production targets in upcoming earnings is likely to hit the share price. Last quarter, Volkswagen had already warned of supply constraints (read semiconductors).

Watch out for any update around a possible Porsche IPO happening in 2022. Automotive News Europe reported at the end of May that the Porsche Pietch family could take a stake in the Volkswagen-owned sports car brand should it be separately listed. Valuations for Porsche range from €45bn to €90bn. Such a move would lessen Porsche Pietch’s influence on Volkswagen, through a holding company the family owns over 30% equity stake in the company and over half the voting rights.

  

What are analysts expecting?

Analysts are expecting Volkswagen to post earnings of €4.40 a share for the third quarter, down from €5.12 reported in the same period last year, according to Refinitiv data. Revenue is forecast to come in at €57.17m for the quarter, down from €59.35m in the same period last year.

Volkswagen’s share price has a median €285 average analyst price target, which represents a hefty 50% upside from its 8 October close, based on Refinitiv data. The most bullish price target is €340 a share, while the most bearish is €185. Of the 27 analysts offering recommendations in October, a majority of 22 rate the stock as buy or outperform.