What's going on?
Volkswagen – possibly the world’s largest automaker – reported record sales for the first 11 months of 2018 on Thursday; but that didn’t stop its shares screeching down 4%.
What does this mean?
VW owns brands like Audi, Porsche, and Lamborghini – and it sold 5.7 million cars between January and November, 1% more than a year ago, as emerging markets like Brazil helped drive growth and the impact of new European emissions rules faded.
But it’s not all poop-poop (in a good way) for the German company. The ongoing global trade war is a big concern: although China recently cut import taxes (a.k.a. “tariffs”) on cars coming from Europe, trade tensions with the US (and economic wobbles at home) are nevertheless putting off the Chinese buyers who make up over half of VW’s sales. The automaker also this week announced a proposed production partnership with American rival Ford, partly to bypass US tariffs on cars shipped from Europe. But VW’s not stopping there in protecting its business: a planned $3.4 billion of cost cutting should help boost its profit margin – and cheer investors.
Why should I care?
The bigger picture: A false start to the trade war ceasefire.
News broke late on Wednesday that a senior executive at monster Chinese telecommunications equipment supplier Huawei was arrested in Canada late last week – and may soon be extradited to the US to face charges apparently relating to violations of US sanctions on Iran. This may once again fan the flames of the supposedly de-escalating China-US trade conflict…
For markets: Europe crashed.
VW’s bumper sales didn’t stop it getting caught up in European stock markets’ worst day since the Brexit vote on Thursday. Investors fearing the Huawei arrest could lead to fresh trade tariffs (and therefore lower company profits) sold off stocks around the world – and, with their reliance on the Chinese market, the “Big Three” German trio of Mercedes-Benz owner Daimler, BMW, and Volkswagen were particularly hard hit as shares of European automakers skidded to their lowest level since 2016.