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**I. Positions**
Long VOW3 as my previous post.
Sertraline 50mg, taken daily, as God intended.
**II. The Part Where I Tell You I Was On The Call**
Let me explain. I participated in the Volkswagen Group Q1 2026 results conference call on April 29, 2026. Oliver Blume was there. Arno Antlitz was there. Rolf Woller was moderating. Pietro Zollino introduced everyone with the energy of a man who genuinely enjoys his job, which I found suspicious.
I was dialed in from my kitchen at 9am Wolfsburg time, which in my timezone was reasonable, with a cup of coffee I had not made properly because I was distracted by Gerald.
**Background on Gerald**
Gerald is a man who lives in the corner of my left eye. He has been there for approximately eight months. He wears a sensible blazer. He does not exist when I look at him directly. He only appears in the periphery, which means I have developed a habit of looking slightly to the right of everything so he remains visible on the left side. My ophthalmologist says there is nothing wrong with my eye. My ophthalmologist has not met Gerald.
Gerald appeared that morning while I was waiting for the call to start. He looked at the pre-market price of VOW3 and said, from the extreme left edge of my vision: *net cash flow*. Just those three words. Then someone unmuted and asked me to press star one and one to ask a question.
I asked a question. I am not going to tell you which one. My girlfriend would find out who I am and she would ask follow-up questions about how I came to know certain things about the geopolitical situation in a region that also happens to contain certain types of establishments where certain types of consultants operate, and that is a conversation I am not prepared to have. What I will tell you is that my question was answered, the answer was interesting, and Rolf said thank you with the warmth of a man who meant it.
Now let me tell you about the syringe.
**The Medical Situation (Relevant Context)**
A few days ago, as I said in my last VolksWagen post here, I met a Chinese consultant. Things developed at a pace that I would describe as inadvisable. I got an STD. The situation resolved itself in a clinic where a doctor was professionally required to maintain eye contact with me. She informed me that I required an antibiotic injection. I said fine. She left the room and came back with an instrument that I can only describe as a syringe the length of a bazooka. Possibly longer. The light was bad. It went into my gluteus maximus. I did not cry. It burned. While this was happening I thought: I should be looking at German automotive equities. Gerald would have agreed. Just like someone else we know had a very similar experience once, but that is categorically not my story to tell and I will not be elaborating.
**III. The Actual Numbers (The Part You Came For)**
Okay. Here is what happened in Q1 2026 at Volkswagen Group. I will try to explain this in a way that is honest without being so honest that I have to mention the consultation fees I incurred while researching this position.
**The Headline: Worse Than It Looks, Better Than It Smells**
|**Metric**|**Q1 2026**|**Q1 2025**|**Change**|**Verdict**|
|:-|:-|:-|:-|:-|
||||||
|Sales Revenue|EUR 75.7B|EUR 77.6B|\-2.5%|Fine|
|Operating Result|EUR 2.46B|EUR 2.87B|\-14.3%|Looks bad. Read on.|
|Operating Margin|3.3%|3.7%|\-40bps|Below 4-5.5% guidance range|
|Earnings After Tax|EUR 1.56B|EUR 2.19B|\-28.5%|EPS: EUR 2.55 ordinary|
|**NET CASH FLOW (Auto)**|**EUR 2.0B**|**(EUR 0.8B)**|**+EUR 2.8B swing**|**THIS IS THE STORY**|
|Net Liquidity (Auto)|EUR 34.2B|EUR 34.5B (Dec)|\-EUR 0.3B|Basically flat. Good.|
|Deliveries|2.049M units|2.134M units|\-4.0%|Market fell 3.7%|
**The Most Important Number In the Report**
The number everyone reported: operating margin of 3.3%, below the full-year guidance of 4.0-5.5%. The number nobody reported: net cash flow swung from NEGATIVE EUR 0.8B to POSITIVE EUR 2.0B. That is a EUR 2.8 billion improvement in one quarter. The full-year guidance for net cash flow is EUR 3-6 billion. They already have EUR 2 billion of it. Gerald pointed at this number and said nothing, which is his version of screaming.
**One More Thing Before You Panic**
The EUR 0.5 billion ID.4 US production discontinuation charge is one time. Strip it out and the operating margin for Q1 is roughly 3.9-4.0%, essentially at the floor of the guidance range. Q1 is seasonally the weakest quarter for VW due to how they fill the order bank. The full-year margin guidance of 4.0-5.5% was maintained unchanged. One-time charges are one time. The market sometimes forgets this.
**IV. Brand by Brand: The Winners, the Losers, and the Ones I Feel Sorry For**
This is where it gets interesting. And by interesting I mean some brands are doing great and one brand collapsed so hard it made a noise.
|**Brand / Group**|**Q1 2026 EBIT**|**Q1 2025 EBIT**|**Change**|**Comment**|
|:-|:-|:-|:-|:-|
||||||
|CORE BRAND GROUP (TOTAL)|EUR 1,541M|EUR 1,118M|\+38%|Best result in years|
|VW Passenger Cars|EUR 73M|EUR 112M|\-35%|ID.4 US charge. Without it: ahead of prior year.|
|Skoda|EUR 660M|EUR 546M|\+21%|Elroq BEV killing it. 8.3% margin. Remarkable.|
|SEAT / CUPRA|EUR 43M|EUR 5M|**+760%**|Yes, seven hundred and sixty percent.|
|VW Commercial Vehicles|EUR 154M|EUR 37M|\+316%|New Transporter. Cost cuts. Dramatic recovery.|
|Tech Components|EUR 562M|EUR 387M|\+45%|Factory cost optimization working.|
|Progressive Group (Audi etc)|EUR 588M|EUR 537M|\+9.5%|Volume down 6.1% but costs lower. Fine.|
|Sport Luxury (Porsche Auto)|EUR 517M|EUR 678M|\-23.7%|China and tariffs. 911 demand saving it.|
|CARIAD (software)|(EUR 420M)|(EUR 755M)|\+44% improvement|Still losing money. But 44% less of it.|
|Battery|(EUR 230M)|(EUR 213M)|\-8%|Fixed costs of building gigafactories. As expected.|
|**TRUCKS BRAND GROUP**|**EUR 40M**|**EUR 640M**|**-93.8%**|**ALARM. See below.**|
|Financial Services|EUR 868M|EUR 948M|\-8.4%|Revenue up EUR 965M. Margins declining.|
**SEAT/CUPRA: The Comeback Nobody Is Talking About**
SEAT/CUPRA up 760 percent from EUR 5 million to EUR 43 million. I want to say this one more time because I think it deserves the attention. SEAT/CUPRA last year made EUR 5 million in operating profit. That is a bad quarter for a medium-sized restaurant. This quarter they made EUR 43 million. The performance program is cutting costs, the Tavascan got exempted from EU tariffs on China-produced cars effective February, and CUPRA the brand continues to build momentum. This is a turnaround story that is actually turning.
**THE TRUCKS SITUATION (IMPORTANT)**
The Trucks brand group operating result went from EUR 640 million to EUR 40 million. That is a 94% collapse. The causes are: e-mobility project write-downs at MAN, costs from the agreement to sell a US plant at the International brand, litigation charges, US tariff impacts, and volume declines in South America. South American truck deliveries fell 23%. Most of this is one-time. The key word is *most*. TRATON is running its own restructuring. Watch the half-year report in July for whether this recovers or if there is a structural problem underneath the noise.
**V. Where On Earth VW Made And Lost Money**
|**Region**|**Q1 2026 deliveries**|**Change vs Q1 2025**|**What happened**|
|:-|:-|:-|:-|
|||||
|Western Europe|821,037|\+4.1%|Market up 4.2%. BEVs up 11.1%. Germany +4.8%. Fine.|
|Germany specifically|291,326|\+4.8%|BEV up 20.2%. Golf still #1 car. 8 models lead their segments.|
|Central & Eastern Europe|128,400|\+7.5%|Market up 11.9% so slight share loss. Skoda driving volume.|
|North America|191,542|\-12.7%|Tariffs. Market fell 5.1% but VW fell 12.7%. Underperformed.|
|USA specifically|121,432|\-19.7%|BEV deliveries fell 80.1%. EV subsidies expired Sept 2025.|
|South America|133,882|\+11.5%|Brazil +21.9%. Polo, T-Cross, Tera working. Bright spot.|
|Asia-Pacific|616,911|\-14.2%|China -14.9%. Japan -20.0%. BEV in Asia-Pacific -52.8%.|
|China specifically|548,230|\-14.9%|Market fell 17.3% so VW outperformed. BEV: only 9,375 units.|
**China BEV: 9,375 Units. Worth Sitting With That.**
China delivered 9,375 all-electric vehicles in Q1 2026. In the world's largest EV market. That is 9,375 units. The Xpeng partnership was supposed to help. The in-China-for-China strategy is supposed to help. The 20 new China-specific models in 2026 are supposed to help. None of this showed in Q1 numbers because the new models launch from Q3. So technically the situation is: ask again in July. But 9,375 units in one quarter in China is a number that deserves a moment of quiet contemplation.
**South America: The Growth Story Nobody Prices In**
South America continues to be the geography that nobody talks about and nobody prices in. Brazil deliveries up 21.9%. The total South American market up 13.7%. VW holds 12.5% market share in South America. The Polo, T-Cross, and Tera are the volume drivers. Revenue down slightly due to mix but the volume story is real. If you want a positive surprise that the market has not fully appreciated, South America is it.
**VI. The 2030 Plan: VW Is Reducing Things**
On the call, Oliver Blume unveiled what he called the Volkswagen Group Target Vision 2030. I was listening carefully because Gerald was also listening, from the left side of my vision, with the expression of a man who has seen corporate restructuring plans before and is reserving judgment.
The plan reduces the following things:
* **Models:** from approximately 150 down by a double-digit percentage. Fewer cars, more focused portfolio.
* **Variants and options:** simplified to make ordering easier and cheaper to engineer.
* **Technology stacks:** fewer platforms, fewer electrical/electronic architectures, fewer software systems.
* **Production capacity:** target is 9 million units annually, down from 12+ million invested footprint. Already reduced 1 million in China and 1 million in Europe.
* **Complexity:** 1,500 non-consolidated entities in the books. They want fewer layers, fewer entities, cleaner structure.
* **Production cost per car:** targeting EUR 3,000 average in Europe. Currently above that. German plants reduced costs by 20% in 2025. First time in a decade.
**Osnabrück: Defense Partnerships Are More Interesting Than They Sound**
The Osnabrück plant situation is legitimately fascinating. VW is in advanced talks with defense companies, specifically cited: Rafael and Dynamit Nobel (which is owned by Rafael). The idea is to use VW's manufacturing expertise, automation knowledge, and qualified workforce to support German defense production needs. This is not VW making weapons. This is VW making things that go in military transport and safety systems using their serial production capability. In a Europe where defense spending is accelerating rapidly, this is an intelligent use of otherwise excess capacity. The first instance is Osnabrück. Zwickau will likely come next.
**7. What They Promised They Will Deliver**
|**KPI**|**Q1 2026 Actual**|**Full-Year 2026 Target**|**Changed?**|**Verdict**|
|:-|:-|:-|:-|:-|
||||||
|Group Op Return on Sales|3.3%|4.0% to 5.5%|No change|Below range. One-time charges explain gap.|
|Net Cash Flow (Automotive)|EUR 2.0B (Q1)|EUR 3B to EUR 6B FY|No change|Already at 33% of low end in Q1.|
|Net Liquidity (Automotive)|EUR 34.2B|EUR 32B to EUR 34B|No change|Within range.|
|Investment Ratio|11.3%|11% to 12%|No change|Within range.|
|PC&LCV Revenue growth|\-2.5% (Q1)|\-3% to 0% FY|**REVISED DOWN**|Was 0% to +3%. FX is the stated reason.|
|Group Revenue growth|\-2.5% (Q1)|0% to +3% FY|No change|Needs to accelerate in Q2-Q4.|
|Deliveries|2.049M (-4%)|Prior-year level|No change|Behind pace currently.|
**The One Change: FX-Driven Revenue Guidance Cut**
The only guidance change: Passenger Cars and Light Commercial Vehicles segment revenue was revised from 0% to +3% down to -3% to 0%. The stated reason is adverse exchange rate trends. Not volume. Not competition. Currency. The full-year operating margin of 4.0-5.5% was maintained with no drama, no asterisks, no sideways qualifications. For a quarter where the reported margin missed the range, maintaining every other target is notable.
**8. Things That Happened Beyond The P&L**
**1. ID.4 US Production Killed. EUR 0.5B Charge.**
The Chattanooga, Tennessee plant stopped producing the ID.4 as of mid-April 2026. The charge is EUR 0.5B. This is one-time. The plant will refocus on higher-volume ICE models like the Atlas. BEV deliveries in the US fell 80.1% partly because EV subsidies expired September 2025 and partly because tariffs make importing cheaper than making locally anyway. This is a rational, expensive, necessary decision.
**2. EUR 1.75B Hybrid Note Redeemed March 24, 2026.**
Called in February, redeemed in March. The hybrid was reclassified from equity to debt before redemption under accounting rules, temporarily reducing equity and net liquidity. This is why net liquidity went from EUR 34.5B to EUR 34.2B despite positive cash flow. The bond was from 2014. It was always going to be called. No surprise here.
**3. Bugatti Rimac Sale Approved. EUR 346M Assets Held For Sale.**
Porsche and VW agreed to sell their stakes in Rimac Group, Bugatti Rimac, and Bugatti International. Agreement signed April 2026. Subject to regulatory approval. The assets are classified as held for sale. This is portfolio rationalization. Bugatti is impossible to electrify profitably. Selling it is the right call. Price not yet disclosed.
**4. Europcar: VW Will Buy Another 27% for \~EUR 1B in 2027.**
Attestor exercised a put option on its Europcar stake. VW agreed to acquire it, bringing VW ownership from roughly 66% to 93% of the parent company. Cash outflow of approximately EUR 1B happens in 2027. This is mobility services, not car manufacturing. VW is building a diversified transport portfolio beyond the automobile.
**5. CARIAD Software Losses Down 44%.**
Operating loss improved from EUR 755M to EUR 420M. Revenue up EUR 151M to EUR 389M on successful software deliveries. This matters because CARIAD has been the biggest source of investor skepticism since the Porsche Macan EV software delays in 2023-2024. The trajectory is improving. Still loss-making. Still important to watch.
**9. My Verdict, From the Perspective of a Man Who Was On the Call**
Gerald appeared one final time while I was writing this section. He looked at the net cash flow number for a long time. I have learned that when he looks at a number for a long time without speaking, it means he agrees with the conclusion I am about to reach. He does not volunteer opinions. He only confirms them, from the periphery, in silence, in a blazer that I think is from a good brand but I can never get close enough to check the label.
**THE BULL CASE (THINGS THAT IMPROVED)**
* Core brand group: EUR 1.54B, up 38%. The restructuring is working where it matters.
* Net cash flow: EUR 2.0B vs negative EUR 0.8B. Actual cash, not accounting adjustments.
* Net liquidity EUR 34.2B: stable despite EUR 1.75B hybrid redemption and ID.4 charge.
* Full-year guidance: entirely maintained except FX-driven revenue tweak.
* CARIAD losses down 44%. The software problem is improving.
* Europe deliveries up 4.1%. Germany up 4.8%. BEVs up 11.1% in the region.
* SEAT/CUPRA up 760%. VW Commercial Vehicles up 316%. Real turnarounds.
**THE BEAR CASE (THINGS THAT DID NOT IMPROVE)**
* Operating margin 3.3%: below guidance range. Even ex-ID.4 charge, at the floor only.
* China BEV: 9,375 units. In China. In a quarter. This is a strategy that has not yet delivered.
* Trucks collapsed 94% to EUR 40M. Yes mostly one-time. But worth watching.
* Inventory at dealers is noticeably higher than end of 2025. Pricing pressure risk ahead.
* North America: -12.7% deliveries, -19.7% in USA. Underperformed the market.
* Financial result swung to negative EUR 228M from positive EUR 236M.
* Dealer inventory building is a yellow flag for Q2 pricing.
**BOTTOM LINE**
Q1 2026 is not a clean quarter. No quarter during a Middle East escalation, a Strait of Hormuz closure, a US tariff regime, and a EUR 0.5B one-time production discontinuation charge is going to look clean. The correct question is not whether this quarter is beautiful. It is whether the underlying business is improving. On the Core brand group evidence, the cash flow evidence, and the maintained guidance evidence: yes. The Trucks situation and the China EV situation are real problems that are not fixed yet.
I was on the call. I heard the answers. I asked my question. I am keeping the question to myself.
**Positions: Long 300 VOW3 shares and still selling in the money puts on wednesdays.**
*This is not financial advice. It is the analysis of a man who researches German automotive equities while managing an ongoing relationship with a peripheral hallucination named Gerald, who has been right about every major call I have made in the last eight months, and who communicates primarily through silence and meaningful looks from the corner of my vision that I have learned to interpret as approval or concern with reasonable accuracy.*
*Sertraline 50mg. Daily. Do not skip doses. The volatility is worse without it.*
*Not a doctor. Not a financial advisor. Not a licensed anything. Gerald is not registered either.*