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Investing.com -- Moody’s lowered Volkswagen (ETR:VOWG_p)’s rating from A3 to Baa1 today. The downgrade was due to a variety of factors including industry headwinds, structural challenges, the continual need for investment, and intense competition in the Chinese market.
Moody’s stated in its announcement that if these measures are successfully executed, they could lead to an improvement in profitability by 2026 or 2027. The ratings agency also noted Volkswagen’s strong balance sheet, which features low leverage and good liquidity. This gives the company time to carry out strategic shifts and manage industry challenges.
Moody’s cited the recent decrease in operating margin and free cash flow generation, with little potential for significant recovery in the coming quarters as a reason for the downgrade. Despite the downgrade, Volkswagen’s rating remains three levels above junk status.
Last week, Volkswagen predicted a challenging year ahead as it works to increase electric vehicle sales, reduce costs, and navigate trade tensions. This comes amidst strong competition from rivals offering cheaper and faster alternatives in China.
Volkswagen is undergoing significant changes, introducing new models and implementing cost cuts in its key markets of China and Germany. The carmaker’s earnings in China are predicted to fall by up to 1 billion euros in 2025.
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