No company in Germany earns as much the Volkswagen Group. This year the Wolfsburg-based automaker likely will achieve a net profit of more than €10 billion ($13.1 billion), an increase of more than €1 billion over the extraordinarily strong performance in 2013.
Rapidly rising sales in China, which now generates one-third of Volkswagen sales, could help fulfill the long-held dreams of Martin Winterkorn, chairman of the management board, and Ferdinand Piëch, chairman of the supervisory board and grandson of company patriarch Ferdinand Porsche, to make Volkswagen the largest automaker in the world by 2018.
Yet investors don’t share the company’s jubilation. On the contrary, they are treating the stock as toxic, selling off so many shares that since the beginning of the year, Volkswagen has lost 15 percent of its value. It now ranks 28th among the 30 stocks on the DAX stock index of major German companies and is worth at least €12 billion less than in January.
What’s troubling investors isn’t the present, but the future. “With VW, as in the case of the two other large German (automobile) manufacturers BMW and Daimler, is the fear of adversity,” a trader in Frankfurt said.
“The hope of balancing out China with the newly industrialized countries has not yet been fulfilled.”
Many stockholders suspect difficult times ahead, not only in the usual tough sales regions such as Germany and southern Europe, but also in the emerging markets. Investors are becoming more skeptical because of ongoing financial difficulties in Brazil, Russia and India, which have been touted as the next nations to experience the kind of economic boom that transformed China.
It’s not only investors who are disillusioned. Mr. Winterkorn counts himself among the disappointed. For years he has believed – along with the rest of the car-making industry – that newly industrialized countries would soon enter the era of consumer consumption as China has done. Those dreams have not materialized.
“From the widely touted BRIC countries, the emerging markets enjoying a boom, all that remains is the ‘C’ for China,” he said.
The wobbly world economy concerns the German auto industry, as does the lame recovery in the euro zone, weak business activity in the core countries of Germany, France and Italy and the crisis in Ukraine. In addition, there also are economic slowdowns in South America, India, Turkey and Japan.
Admittedly, the influential inter-trade organization German Association of Automotive Industry (VDA) raised its production and export outlook in early July. Exports are expected to rise by 5 percent, not 2 percent, but the growth is being driven by far fewer countries than the association had hoped. Aside from improvements in the U.S. and Europe, which certainly pleases the industry, the only other genuine growth market remains China. Yet even there, Beijing is harassing automakers with forced recalls while the government tries to drive down prices by claiming monopolistic practices.
“The hope of balancing out China with the newly industrialized countries has not yet been fulfilled,” said Stefan Bratzel, director of the Center of Automotive Management (CAM) in Bergisch Gladbach.
The trend for 2014 is clear. While China, as the largest market for cars in the world, will again show an increase in sales of 11 percent, CAM projects, sales in Brazil are expected to decline by 11 percent. A disaster awaits automakers in Russia, where sales are expected to plummet 19 percent, dashing hopes it would supplant Germany as the largest automobile market in Europe. Prospects are no better in Turkey, where sales are predicted to tumble 19 percent, and in India, where a 2 percent drop is likely.
Results for the German auto industry are double-edged. Strong market positions in the U.S. and China have Daimler, BMW and Volkswagen sticking to their optimistic predictions for 2014 and anticipating vigorous gains in sales and profits. But their dependence on volatile China continues to grow on the balance sheets. More than one-fifth of BMW’s sales revenues come from China, which since 2013 has become the Munich-based company’s largest single market. The Chinese market is even more important for Volkswagen and Audi, where 35 percent of sales originate.
“Vulnerability in China is increasing for German automakers,” Mr. Bratzel said.