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China premium car buyers drive VW back to profit

(Reuters) – Volkswagen AG (DE:VOWG_p) returned to profit in the third quarter as surging Chinese demand for luxury cars helped offset a 1.1% drop in vehicle deliveries due to the ongoing global COVID-19 crisis.

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

“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.”

The German automaker reiterated it expects to post a profit for the full year, saying that its business “recovered noticeably” in the quarter as sales in China of its premium vehicles, including Audi and Porsche sportscars, rose 3%.

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

During the third quarter, VW’s performance was aided by a series of cost-cutting measures launched earlier this year.

VW said its net liquidity rose to 24.8 billion euros from 18.7 billion at the end of the second quarter.

Excluding one-time items, its third-quarter operating profit was 3.2 billion euros ($3.78 billion), down from 4.8 billion euros a year earlier.

VW reported a 5.4% adjusted operating return on sales in its automotive division, rebounding from minus 5.8% in the second quarter though below the 7.4% it recorded a year earlier.

Revenue fell 3.4% to 59.36 billion euros.

It said while its full-year 2020 profit would still be “severely lower” than in 2019, it would still be in “positive territory” after a second-quarter loss of 1.7 billion euros.

In a note to clients, Jefferies (NYSE:JEF) analyst Philippe Houchois described VW’s results as a “solid performance with strong cash but relatively muted in the context of the (auto) sector recovery.”

The auto industry has rebounded well from lockdowns that closed production plants and dealerships.

Last week Daimler AG (DE:DAIGn) reported a record 24% jump in Chinese demand for its Mercedes-Benz cars, boosting its margins in the third quarter.

Italian-American car maker Fiat Chrysler Automobiles NV (MI:FCHA) (N:FCAU) and Peugeot (OTC:PUGOY) manufacturer PSA Group (PA:PEUP) both posted solid results this week ahead of their planned merger next year.