Volkswagen share price slides despite return to the profit zone.

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Volkswagen reports profit before tax of around €2.4 billion for the third quarter
The automaker made profits after recording losses of over 1 billion euros in the first half of 2020
The VOW share is heading for a 9% weekly decline in its largest sell-off since July

Volkswagen (ETR: VOW) shares fell by around 1% today, despite better than expected earnings for the previous quarter.

Fundamental analysis: China enables sales to recover

The German car giant achieved a pre-tax profit of around 2.4 billion euros in the third quarter, recovering from losses of over 1 billion euros in the first half of 2020.

While the measures against the coronavirus pandemic undoubtedly produced results, the carmaker’s business “continued to be severely impacted by the COVID 19 pandemic in the first nine months,” said Frank Witter, President and Chief Financial Officer of VW Credit Inc.

The German automaker said its product shipments in the first three quarters of 2020 had slumped nearly 19% year-over-year, but recovered to earlier levels in the third quarter. A recovery was mainly driven by an increase in deliveries in China, Volkswagen’s largest single market, which rose by 3% year-on-year from July to September.

As the markets recovered, Volkswagen’s financial results also recovered, and in this period from July to September the automaker’s operating profit of €3.2 billion “clearly returned to positive territory”.

Looking ahead to the 2020 financial year as a whole, Germany’s largest automaker estimates that sales revenue will be “significantly lower than in the previous year”, but remains “in positive territory”. As Covid-19 has largely impacted the company’s business activities, Volkswagen said that its vehicle deliveries would be significantly lower than in the previous year.

According to the earnings report, Volkswagen shares were trading in the green zone at around 2.5% in late trading on Thursday.

The company’s return to profitability comes amid a resurgence of coronavirus cases in Europe, which led to the reintroduction of strict national bans in Germany and France on Wednesday.

Technical analysis: Big weekly downward movement

The Volkswagen share price is around €144.00, around 0.8% below the daily price. Nevertheless, the positive earnings report was unable to help offset the weekly losses and drive the VOW to a weekly 9% decline in the biggest sell-off since July.

Volkswagen Daily Chart (TradingView)

The price action is now approaching the area where there are strong support lines – the 50% Fibonacci retracement line at 131.3, a horizontal support line at 128.00, and 124.00 – the main Fibonacci retracement line of 61.8%.

Summary

German automaker Volkswagen announced a pre-tax profit of around 2.4 billion euros for the third quarter. After losses of more than 1 billion euros in the first half of this year, this represents a significant recovery, but still not enough to prevent the share price from falling this week.

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