Volkswagen posts deepest loss since Dieselgate on Porsche writedown, China woes

By Rachel More and Christina Amann

BERLIN, Oct 29 (Reuters) - Volkswagen posted its steepest quarterly loss in more than a decade in the third quarter, hit by a writedown on its stake in Porsche and weakness in China, adding urgency to the automaker's sweeping restructuring plan.

The world's second-largest carmaker reported an operating loss of €5.9 billion ($6.6 billion) for the three months, prompting management to renew calls for radical cost cuts as a fight with German unions looms.

Driven by €8 billion in one-off charges, the loss was Volkswagen's largest quarterly deficit since the fourth quarter of 2015, when the group booked hefty costs linked to the "Dieselgate" emissions-cheating scandal.

Volkswagen is grappling with shrinking margins as Chinese electric vehicle makers gain market share in Europe after ending the group's dominance in China, highlighting the mounting pressures facing European automakers.

"We must fundamentally reshape our business model," finance chief Arno Antlitz said while presenting the results.

Volkswagen's restructuring plan, agreed by the board in September and involving 100,000 job cuts across the group and the closure of up to four plants in Germany, must be implemented quickly, he added.

"Our financial performance leaves no room for delay."

'TRANSITION YEAR'

Volkswagen shares have lost more than three-quarters of their value since a 2021 peak. But investors took Thursday's loss in their stride after the carmaker earlier this month flagged €10 billion in one-off costs and slashed its profit margin guidance.

The shares, which initially fell, were up 1.7% by 1100 GMT.

"The figures don't really shock anyone anymore," said a Frankfurt-based equity trader.

Volkswagen's problems mirror those facing much of the European auto sector. BMW and Mercedes have also cut their annual targets because of weakness in China.

"Operating results were in line with low expectations. VW is in a transitional year," said Ingo Speich of Deka Investment, a top 10 investor in Volkswagen.

CHINA RISKS UNDER SPOTLIGHT

Volkswagen's restructuring has been driven in large part by the decline of its once highly profitable China business, where the group is also cutting jobs and capacity.

Chinese consumers have increasingly shifted towards domestic brands offering advanced technology at lower prices, prompting Porsche to scale back in the market. Volkswagen is meanwhile increasing exports from China to offset slowing local demand.

Its Anhui venture is currently loss-making, with management targeting a return to at least break-even by 2030, Antlitz said.

China's weak domestic market has also pushed local manufacturers into Europe in search of growth, forcing Volkswagen to accelerate the rollout of lower-cost EVs to defend market share. That effort is weighing on margins because EVs are more expensive to produce than combustion engine vehicles.

Moritz Kronenberger of Union Investment said further writedowns could not be ruled out.

"If business in China and the competitive landscape vis-à-vis Chinese competitors in other markets do not improve soon, there will continue to be significant potential for writedowns in the future," Kronenberger said.

($1 = 0.8959 euros)

(Additional reporting by Christoph Steitz and Daniela Pegna; Editing by Adam Jourdan, Thomas Derpinghaus and Mark Potter)