Morningstar DBRS Comments on Volkswagen's Q3 2024 Results - Credit Ratings Unaffected Despite Weaker Performance

Morningstar DBRS published a commentary discussing the credit implications of Volkswagen AG's (VW; rated A (low) with a Stable trend) Q3 2024 financial results.

Key highlights include the following:
-- While VW's recent earnings weakness is credit negative, this is not sufficient to affect its credit ratings at this time, as its financial risk assessment remains very solid, bolstered by a strong balance sheet and abundant liquidity position.
-- VW's favourable business risk assessment, being among the world's largest auto manufacturers with leading positions in several major markets, continues to support the current credit ratings.

"While we acknowledge that VW's weaker financial results are credit negative, we also note that, for the time being, the Company's financial risk assessment (FRA) remains readily sufficient to absorb such moderation in earnings/cash flow, while maintaining credit metrics well consistent with the current credit ratings", said Robert Streda, Senior Vice President of European Corporate Ratings at Morningstar DBRS. "However, we also note that weaker earnings and likely restructuring activities, amid ongoing high cost and investment requirements as the Company progresses with its electrification efforts, could eventually result in a notable softening in VW's FRA. We will continue to closely monitor VW's financial performance and, should that performance continue to weaken such that the Company is expected to incur sustained negative free cash flow such that it would likely result in a marked deterioration in credit metrics, negative rating actions could result".