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AUTOMOTIVE: Volkswagen (VW A3[N]/BBB+/A-): Moody’s Outlook Negative

AUTOMOTIVE
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  • No great surprise that Moody’s has moved Volkswagen to outlook negative. We flagged this risk post profit warning.
  • Moody’s welcomes recent strategic initiatives although it sees significant execution risk and does expect benefits before 2026. It reads as though Moody’s will give it time through next year to demonstrate visibility on a turnaround.
  • With ongoing restructuring costs, it expects negative FCF next year; that will need to show signs of returning to mid-single-digits.
  • Moody’s sees margins around 4% (5.5% ex restructuring costs) for the next 12-18 months, with 6.5-7% needed to justify the rating.
  • Leverage is expected to stay around 2x gross which is supportive as it remains within the ratings threshold.
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  • No great surprise that Moody’s has moved Volkswagen to outlook negative. We flagged this risk post profit warning.
  • Moody’s welcomes recent strategic initiatives although it sees significant execution risk and does expect benefits before 2026. It reads as though Moody’s will give it time through next year to demonstrate visibility on a turnaround.
  • With ongoing restructuring costs, it expects negative FCF next year; that will need to show signs of returning to mid-single-digits.
  • Moody’s sees margins around 4% (5.5% ex restructuring costs) for the next 12-18 months, with 6.5-7% needed to justify the rating.
  • Leverage is expected to stay around 2x gross which is supportive as it remains within the ratings threshold.