Volkswagen (VWAGY) reported poor third quarter results Wednesday was another sign that major automakers are bogged down by slowing global demand and competition from Chinese automakers.

In the third quarter, Volkswagen reported operating profit down 42% to 2.86 billion euros ($3.1 billion), even though its revenue fell only 0. 5%. Even more worrying, operating margin fell to 3.6%, from 6.2% a year ago, with global deliveries down 8.3% to 2.12 million vehicles.

Volkswagen, which counts Audi, Bentley and Porsche among its brands, as well as Skoda and Scania in Europe, is struggling with high production costs and slowing demand. And in China, its joint ventures are under pressure from domestic automakers like BYD (BYD) and Li Auto (LI).

The year-to-date results “reflect a challenging market environment and underline the importance of implementing the performance programs we have launched across the Group,” said Arno Antlitz, CFO and COO of Volkswagen Group, in a press release.

“The Volkswagen brand recorded an operating margin of just 2% after nine months. This highlights the urgent need for significant cost reductions and efficiency gains,” he said.

Volkswagen maintained its forecasts for the year 2024, which were lowered last month. VW said it expects net cash flow from the automotive business of around 2 billion euros, up from 2.5 billion to 4.5 billion euros previously, with revenue down 0 .7% to 320 billion euros ($356.7 billion).

Volkswagen also maintained its profit margin forecast of around 5.6% in 2024, down from the previous estimate of 6.5% to 7%.

In China, sales fell 12% year-on-year, reflecting weakening demand for its products compared to competitors. To strengthen its operations in China, VW said earlier this year that it would join forces with the Chinese XPeng (XPEV) to produce two new Volkswagen-branded electric vehicles, powered by XPeng software and EV engineering.

Audi, Volkswagen’s premium brand, also announced this year that it had signed an agreement with Chinese state-owned company SAIC develop new electric vehicles for the continent.

Bank of America analyst Horst Schneider believes VW is selling electric vehicles at a loss in China until its new XPeng-designed electric vehicles arrive.

“Volkswagen (is selling electric vehicles at a loss) because they say we have a new strategy in place in China, called ‘In China for China,'” Schneider wrote in a note to investors earlier this month – here. “They want to implement this in the first vehicles in 2026/27, and by 2026/27 Volkswagen will have to survive in the market, which means they basically accept losses… And then (by 2027) , they are trying to gain a little market share (with new electric vehicles).

At the same time, the company is implementing a $10 billion cost-cutting program, which could include closing at least three VW factories in Germany. VW is present talks with IG Metallthe largest automobile union in Germany, which is fighting against the closures. VW also confirmed that it would close its Audi electric vehicle factory in Brussels due to poor sales.

Volkswagen isn’t the only automaker struggling with slowing demand and sales. Luxury rival Mercedes-Benz saw its profit fall by 65% compared to a year ago, and that of Ford (F) stocks fell after being guided down their earnings forecaststhe costs of electric vehicles weighing on results. Ford CEO Jim Farley has repeatedly warned of Chinese dominance of electric vehicles and its repercussions on Western car manufacturers.

Still, Germany-traded Volkswagen shares are up today as Wednesday’s results were better than expected and cost-cutting plans could eventually get VW back on track.

“On companies like Volkswagen, we’re a little more bullish, just because we think there’s a lot of restructuring going on,” BofA’s Schneider said. “There could also be some upside potential in 2025/26 as these restructuring efforts would prove beneficial and earnings would then also improve, particularly for Europe.”

Pras Subramanian is a journalist for Yahoo Finance. You can follow it X and on Instagram.

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