VW's China Headache Deepens, but Rivian Cash and a 50% EV Order Surge Offer a Counter-Narrative
Published on 08/04/2026 at 14:51 | Redaktion boerse-global.de
The numbers coming out of Wolfsburg this earnings season are not pretty. Net profit at Volkswagen tumbled 32.9% year-on-year in the second quarter to €1.54 billion, while the first-half tally of €3.1 billion marks a 30% decline. Revenue, however, has held remarkably steady at €158.1 billion — a mere 0.1% dip from the prior-year period. The problem is not demand for cars in general; it is demand for cars in China, where deliveries have collapsed.
The scale of that collapse depends on how you measure it. Group-wide, China deliveries fell 31.6% in the most recent quarter. For the core passenger car business, the picture is even starker, with a 36.6% plunge. Either way, the message is the same: the price war with BYD and other domestic EV makers is carving deep into Volkswagen's most important market. The company's risk matrix scores China exposure at the maximum 25 points, and the second-quarter operating margin of just 4.2% — or 3.8% unadjusted — shows how much damage the discounting is doing.
Yet for all the gloom, there are counter-currents. The Rivian joint venture, formalized only months ago, is already generating real money: the US electric-truck maker reported that the software partnership contributed $308 million to its quarterly revenue, roughly a fifth of its total sales. And in Europe, Volkswagen's order book for battery-electric vehicles has swelled by more than 50%, with 70,000 pre-orders for the upcoming "Electric Urban Car Family" already banked.
A Tale of Two Margins
The contrast with Mercedes-Benz, Volkswagen's Stuttgart rival, is instructive. Both companies face the same China headwind, but their responses — and their financial profiles — diverge sharply. Mercedes posted a 13.5% profit increase to €1.09 billion in the second quarter, though the drivers were its Vans and Financial Services divisions rather than the core car business. Its adjusted operating margin of 4.0% for Mercedes Cars sits at the bottom of its own guidance range, while Volkswagen's group-wide adjusted margin of 4.3% looks slightly better — until you factor in that Mercedes' unadjusted figure is also 4.0%.
The balance sheets tell a different story. Mercedes carries an equity ratio of 31.5% versus Volkswagen's 24.1%, and its net cash flow from autos was €1.1 billion in the first half, compared with Volkswagen's €3.2 billion. Mercedes' revenue contracted more sharply — down 3.3% to €32.1 billion — but a 10% growth spurt in the US market helped cushion the blow. Volkswagen's top line was essentially flat, but that stability masks the underlying volume deterioration.
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The Valuation Conundrum
On paper, Volkswagen looks like the bargain. The preferred shares trade at a price-to-earnings ratio of 6.03, a price-to-book of 0.28, and offer an expected dividend yield of 8.2% — all well below sector averages. Mercedes commands a P/E of 9.10 and a P/B of 0.65, with a 7.4% yield. The free cash flow yield at VW is 9.4%, versus 7.8% for Mercedes.
But cheap is cheap for a reason. Volkswagen's discount reflects heavy restructuring costs and the China uncertainty baked into the share price. The stock has lost roughly 28% since the start of the year, closing Monday at €76.88 after a 2.51% gain, before slipping to €75.72 in Tuesday trading. Mercedes has fared somewhat better, down about 23% year-to-date to €47.85.
Analysts see upside, though opinions vary widely. The consensus price target stands at €111.42, with seven buy ratings and five holds. Deutsche Bank is the most bullish at €115.00, Berenberg sits at €100.00, while UBS remains cautious with a "Neutral" rating and an €80.00 target.
Restructuring: The Long Game
Volkswagen's response to the crisis is a sweeping restructuring program. The company plans to cut up to 5,000 positions by 2035, with the Porsche subsidiary extending job and site guarantees for its German plants through the same year. The software strategy centers on the Cariad platform, while Mercedes is betting on vertical integration in its AMG division and its own MB.OS operating system. Both approaches are capital-intensive; the question is which pays off faster.
The next major catalyst comes on October 29, when Volkswagen reports third-quarter results. Management has maintained its full-year guidance, targeting a "robust result" above last year's level with an operating margin between 4.0% and 5.5%. Mercedes, meanwhile, has completed a €2.0 billion share buyback and plans up to €1.0 billion more before its 2027 annual meeting.
Two Philosophies, One Problem
In the scoring that matters, Mercedes comes out ahead: 62 points versus Volkswagen's 48, reflecting stronger cost discipline, a more solid balance sheet, and successful diversification through vans and financial services. Volkswagen's strengths lie in improved cash flow, a high dividend yield, and that European EV order momentum.
The strategic bet is straightforward. Volkswagen is the classic value wager — a bet that restructuring will eventually translate into margin recovery. Mercedes is the quality anchor, offering stability and shareholder returns while it waits for its new luxury models to drive growth. Over the next six to twelve months, the market will be watching whether Wolfsburg's cost cuts take hold before Stuttgart's next-generation vehicles hit the road.
