(updated: share price, more background and details, UBS analyst.)

WOLFSBURG (dpa-AFX) - Porsche has spoiled VW's balance sheet: the former profit powerhouse posted an operating loss of nearly one billion euros in the third quarter, plunging the parent company deep into the red. Between July and September, VW reported a loss of 1.07 billion euros, the Wolfsburg-based automaker announced. A year ago, the company had posted a profit of 1.56 billion euros. Investors were not greatly shocked by this, given the previously known special charges for the Stuttgart-based sports car subsidiary; experts had anticipated such a result. The shares dipped slightly on Thursday.

The stock initially gained after the market opened, but then turned negative and was down 0.7 percent at 91.39 euros in the afternoon. This still leaves a year-to-date gain of around 3 percent. Adjusted for the special charges at Porsche and the impact of higher tariffs, especially in the United States, the group said the operating profit margin for the quarter would have been 5.0 percent--slightly better than analysts had expected.

Analyst Philippe Houchois from US investment bank Jefferies noted that the special costs for Porsche were somewhat lower than previously thought. The cash flow from operating activities was also a positive aspect of the report. Tom Narayan of Canadian bank RBC wrote that the core VW brand had once again performed well. Audi also looks promising with the launch of new models.

According to UBS analyst Patrick Hummel, the group is taking a cautious view of the fourth quarter. CFO Arno Antlitz said in a conference call that VW would likely end up in the upper half of the margin forecast, which was lowered to 2 to 3 percent in September, but he declined to give the all-clear. This caution is likely due to the ongoing uncertainty surrounding the semiconductor supply chain caused by chipmaker Nexperia, Hummel wrote, noting that visibility extends only one to two weeks ahead.

Extension of Combustion Engines at Porsche Costs Billions

In the first nine months, VW's profit shrank by more than 60 percent, from 8.8 billion to 3.4 billion euros. The main culprits were charges totaling 7.5 billion euros, primarily due to higher tariffs, the adjustment of Porsche's product strategy, and write-downs on Porsche's goodwill, Antlitz said in a statement. Adjustments and write-downs at Porsche alone cost the group 4.7 billion euros.

Porsche had already reported deep losses for the third quarter last week. The VW subsidiary is suffering from billions in costs related to its recent strategic pivot to extend combustion engine production. This led to an operating loss of nearly one billion euros in the third quarter, and over the first nine months, after-tax earnings plummeted by almost 96 percent. This has now impacted the parent company as well.

VW is not alone in facing these problems. Mercedes-Benz also suffered a nearly one-third drop in profits last quarter. Opel parent Stellantis, while benefiting from a recovery in the key North American market, expects high special charges in the second half of the year.

Chip Supply Secured for Now

The figures do not yet reflect the looming chip crisis involving Nexperia. Supply issues have arisen after the Dutch government took control of the company, which is owned by a Chinese parent. VW said that all its German plants are supplied through the end of next week. Group CEO Oliver Blume told "Zeit" in an interview: "Nevertheless, the situation is critical."

VW continues to look for alternative suppliers, Antlitz said. However, the issue can only truly be resolved politically, the CFO argued, as the disruption was not economically driven. "That's why we hope all relevant parties come together to find a solution." Until then, VW has no choice but to "search for alternatives day by day and week by week."

The VW Group had actually expected this year to go better. Without the special effects, the profit margin for the first nine months would have been 5.4 percent, said CFO Antlitz. "Given the current economic environment, that's actually a decent figure." The group managed slight increases in both sales and revenue: revenue rose 0.6 percent to 239 billion euros, and deliveries were up 1.2 percent to 6.6 million vehicles.

Cost-Cutting Program Shows Results

The long-struggling core Volkswagen brand is also performing better. The cost-cutting program introduced at the end of 2024, which includes plans to cut tens of thousands of jobs, is having an effect: "We are making good progress in restructuring Volkswagen AG and the entire group," said Antlitz. "For the first time in a long while, overhead costs have fallen year-on-year."

The core brand's operating profit rose significantly in the first nine months, from 1.28 billion euros a year ago to 1.48 billion euros now--on nearly unchanged revenue of just under 64 billion euros.

After lengthy negotiations, the company and the union agreed at the end of 2024 on a restructuring program for the core VW brand. By 2030, more than 35,000 jobs are to be cut--nearly a quarter of the 130,000 jobs in Germany. Another 7,500 jobs are set to be eliminated at Audi, and nearly 4,000 at Porsche.

US Tariffs Weigh Heavily

Given new disruptions, the pace of cost-cutting may need to accelerate and some measures may be brought forward, Antlitz said. The new US tariffs alone are expected to cost the group up to five billion euros this year. And unlike other special effects, he does not expect the tariffs to disappear quickly. "The tariff burden will remain."

The timing could not be worse for the VW Group. With business in China shrinking, Wolfsburg had pinned its hopes on growth in North America. Sales there were supposed to rise by 10 percent, Antlitz said. Instead, they shrank by 8 percent in the first nine months.

To avoid tariffs, Audi is still considering building its own US plant. "We are still in discussions with the government," Antlitz said. A decision is expected by the end of the year. So far, only the core VW brand has a US plant, and a plant for the new Scout brand is currently under construction there. Porsche supplies the key US market entirely from Europe, while Audi also ships from Mexico./fjo/men