Geoffrey Smith

Investing.com – Volkswagen (ETR) has reported a “strong” quarter. Higher margins for its premium cars segment, and big financial gains on its hedge activities compensated the Russian war in Ukraine and continuing supply chain issues.

VW stock preferred rose 0.7% on Wednesday in Frankfurt early trading, beating the wider.

VW released a statement in support of its quarter-end results, saying that “based on the figures” and the anticipated better supply of semiconductors in the second half the year, it had confirmed its outlook for 2022. It warned, however that it was still impossible to provide detailed guidance on the entire year due to the conflict in Ukraine and the pandemic effects.

It was steady at 62.7 million euros for the quarter, despite a 15 percent drop in vehicle deliveries. The company responded to shortages by prioritizing high-margin premium brands like Bentley, Audi and Lamborghini.

This shift in sales mix allowed the operating margin of the group to increase to 13.5%, from 7.7% one year ago. However, most of the improvement was delivered by the group’s hedging activities in a period of extreme volatility in markets for key raw materials. VW stated that its fair value revaluations contributed 3.5 Billion Euros ($3.7B) to an overall operating profit of 8.5 billion. Actual operating cash flow of the core automotive segment fell 35% over the previous year, to 5.8 Billion euros.

Additionally, the group reiterated its resolve to continue investing in electric mobility. It is particularly focused on the U.S. market, which it aims at a 10% share by the year’s end.

“Battery-electric vehicles (BEVs) will be the central element of this strategy, with the Group’s BEV portfolio growing to more than 25 models by the end of the decade,” VW said.

Herbert Diess, the chief executive officer of VW, stated to Bloomberg that he sees the Ukraine war as the most serious threat to the group’s future, due to its ability to undermine the German economic system and the possibility that it could accelerate the disintegration of the global economy to a few less efficient regional ones. 

He noted, however, that the near-term outlook had improved since its factories in China reopened. However, he also admitted that their current production is at a ‘low volume. VW exports more than 25% of its production to China. The city’s lockdown in Shanghai closed its factories for several weeks. Despite attempts by authorities to ease quarantine restrictions, the situation is not improving.