Volkswagen's EV performance struggles hinder profit growth

Volkswagen is showing some signs of improvement, but challenges remain, especially with their electric vehicle (EV) performance. Investors are cautiously optimistic after Moody's Ratings provided a mixed review following VW's 2024 results released earlier this month. Moody's downgraded VW's long-term ratings while affirming a short-term one, changing the outlook to stable from negative. The company expects its profit margin to rise to between 5.5% and 6.5% in 2025, up from 5.9% in 2024. However, global sales fell 2.3% last year, impacting overall sales revenue, which grew just 0.7%. VW's operating profit dropped by 15% to €19.1 billion ($20.9 billion) from revenues of €324 billion ($354 billion). Moody's indicated that VW's performance could struggle into 2026 due to slow sales growth and ongoing pricing pressures, particularly from geopolitical tensions and strong competition in China. Despite these hurdles, some analysts are more optimistic. HSBC Global Research recommends VW shares as "buys," noting that while the company has made tough decisions, execution is now key. Meanwhile, UBS upgraded its rating to "neutral" but remains cautious about the company's business in China and its ability to profit from new small EVs. Analysts from Bernstein are still skeptical about VW's strategic execution and overall spending. They emphasize that the company needs to improve the timing and availability of critical vehicles, especially affordable EVs. On a more positive note, Jefferies and Berenberg Bank both maintain "buy" ratings for VW. Berenberg highlights the number of new products planned and the financial benefit from relaxed EU emissions rules, which could help improve margins significantly. Overall, while Volkswagen is making progresses, especially in cost management and product development, the transition to electric vehicles poses significant challenges that they must overcome to enhance profitability.