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China's premium car buyers drive VW back to profit

(Reuters) - Volkswagen AG VOWG_p.DE returned to profit in the third quarter as surging Chinese demand for luxury cars helped offset a 1.1% drop in vehicle deliveries due to the pandemic, sending its shares as much as 3% higher on Thursday.

FILE PHOTO: A woman wearing a face mask following the coronavirus disease (COVID-19) outbreak stands under a sign of Volkswagen at the Beijing International Automotive Exhibition, or Auto China show, in Beijing, China, September 27, 2020. REUTERS/Tingshu Wang/File Photo

The German automaker’s return to the black comes amid spiking coronavirus cases in Europe that led governments in France and Germany to order their countries back into strict national lockdowns on Wednesday.

“The coronavirus remains a central problem,” Volkswagen Chief Financial Officer Frank Witter said in a conference call with reporters. “This situation now is anything but relaxed.”

But Witter said the group expected the economic recovery to continue and did “not anticipate any nationwide lockdowns in larger markets.”

Witter said the takeover of U.S. truck maker Navistar International Corp NAV.N by Volkswagen's trucking unit Traton SE 8TRA.DE was an important acquisition, but the "current economic climate will not make this easy."

Volkswagen reiterated it expects to post a profit for the full year, saying its business “recovered noticeably” in the third quarter as sales in China of premium vehicles, including Audi and Porsche sports cars, rose 3%.

The quarterly performance was also aided by a series of cost-cutting measures launched earlier this year.

Volkswagen said its net liquidity rose to 24.8 billion euros from 18.7 billion at the end of the second quarter.

Excluding one-time items, third-quarter operating profit was 3.2 billion euros ($3.8 billion), down from 4.8 billion euros a year earlier, but up from a second quarter loss of 1.7 billion.

In a note to clients, Jefferies analyst Philippe Houchois described the results as a “solid performance with strong cash, but relatively muted in the context of the (auto) sector recovery.”

Last week, German rival Daimler DAIGn.DE reported a record 24% jump in Chinese demand for its Mercedes-Benz cars, boosting its margins in the third quarter.

Italian-American Fiat Chrysler Automobiles FCHA.MIFCAU.N and Peugeot manufacturer PSA Group PEUP.PA both also posted solid results this week.

Witter said Volkswagen could not say for sure whether it would meet EU CO2 emissions targets this year, adding “it will be a tough race.”

At 1030 GMT, Volkswagen shares were up 2.9% at 129.20 euros.

Reporting by Nick Carey; editing by Jason Neely and Mark Potter