Volskwagen shares at the lowest level since 2010 📉 Citi lowers price target

Volkswagen (VOW1.DE) shares fell more than 2.5%, dropping to their lowest levels in 16 years after Citi lowered both its financial forecasts and price target for the German automaker. The main driver behind the downgrade is the continued deterioration of Volkswagen's sales performance in China, where demand is weakening faster than analysts had previously anticipated. Citi reduced its price target from €110 to €94 per share, compared with the current market price of just under €80. At the same time, the bank maintained its Buy rating. Despite the positive recommendation, however, analysts acknowledge that the company's operating outlook continues to deteriorate.

China Remains the Biggest Problem

According to Citi, weakness in the Chinese market is becoming an increasingly significant drag on Volkswagen's earnings. The company has long been one of the largest foreign automakers in China, but intense competition from domestic manufacturers—particularly in the electric vehicle segment—is steadily eroding its market position.

As a result, Citi cut its earnings-per-share (EPS) forecasts by:

• 18% for 2026,

• 16% for 2027,

• 7% for 2028.

The revisions reflect both lower expected vehicle volumes and weaker profitability.

Margins Could Fall Below Management Expectations

Citi now expects Volkswagen's EBIT margin to decline to just 3.9% in fiscal 2026, below the lower end of the company's own guidance range.

The bank also forecasts free cash flow of approximately €3.5 billion, likewise at the bottom end of management's current guidance.

These projections suggest that investors are increasingly treating Volkswagen's challenges not merely as cyclical headwinds, but as structural issues that could weigh on the business for years.

Geopolitics Is Becoming a Growing Risk

According to Citi analysts, Volkswagen's challenges extend far beyond automobile demand alone.

The bank highlighted the growing impact of geopolitical factors, including trade tensions and U.S. tariffs. In Citi's view, global automakers are becoming increasingly dependent on the regulatory and political decisions of the governments in the markets where they operate.

This is particularly relevant for Volkswagen given its extensive global manufacturing and distribution network.

Is the Market Too Pessimistic?

Despite cutting forecasts, Citi also pointed out one important fact: Volkswagen is currently trading at multi-year valuation lows.

The bank estimates that Volkswagen's stake in Porsche alone is worth approximately €65 per Volkswagen share.

In addition, the group's Financial Services division holds around €47 billion in equity, equivalent to roughly €94 per Volkswagen share according to Citi's calculations.

This suggests that parts of Volkswagen's asset base may be valued by the market well below their underlying fundamental worth.

What Comes Next?

Citi continues to see a wide range of possible valuation outcomes:

• Bull case: €120 per share,

• Bear case: €65 per share.

While management is pursuing cost-cutting measures and attempting to improve profitability, analysts argue that the list of challenges facing Volkswagen continues to grow. As a result, it is becoming increasingly difficult for the company to present the type of growth narrative that investors currently seek in the European automotive sector. Volkswagen shares are currently trading at just under €80, implying a price-to-earnings ratio of roughly 7x annual earnings. However, visible pressure on margins and sales growth remains a significant concern. In the presence of structural challenges, elevated energy costs, and an uncertain outlook for the Chinese market, a low P/E ratio alone does not necessarily indicate a compelling value opportunity at current levels.

Source: xStation5