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Volkswagen's (VWAGY) Exit From Russia Jeopardized: Know Why

Volkswagen’s VWAGY efforts to wind down its operations in Russia have suffered a massive blow after the Russian court froze its assets. Last year, amid mounting tension between Russia and Ukraine, the German automaker announced to cease production in Russia.

The automaker has been trying to sell its Russian assets, which include its flagship plant in Kaluga and an automotive assembly plant in Nizhny Novgorod, which it used to run in collaboration with local carmaker Gaz Group.

Last week, Gaz filed a lawsuit against Volkswagen, claiming that the latter abruptly ended the agreement that was due to run until 2025 and sought to freeze the German automaker’s assets. In its filing, Gaz mentioned that Volkswagen’s plan to leave the Russian market conflicts with its own interest and claimed a compensation of RUB 15.6 billion.

In response to the filing, the Russian court has frozen Volkswagen’s shares in its Russian subsidiary Volkswagen Rus, shares in four different financial services companies, several factories and manufacturing equipment.

Volkswagen’s Russian subsidiary said that it is stunned by the lawsuit and that their partnership "ended on mutually agreed terms." In a statement to Reuters, it said, "We are aware of the claim from GAZ and are familiarizing ourselves with the case materials."

The company is seeking approval from Russian state authorities to sell its Russian business, including the flagship plant in Kaluga, to a reputed Russian investor. “We hope that the claim will not lead to a delay of the transaction, which aims to secure employment and work for the affected employees,” the German automaker added.

Last year, Volkswagen wrote down the value of its business in Russia by a whopping EUR 2 billion but remained quiet about the value of its other businesses. Herbert Diess, former chief executive of Volkswagen, said that the automaker’s assets in Russia represented 0.5% of the group’s total.

Volkswagen’s situation is the classic representation of what the West has been experiencing in its attempt to pull out of Russia. The unfriendly countries on Russia’s list, predominantly EU members and the United States, have been obligated to seek state approval to sell their businesses in Russia. Moreover, the official criteria to get an approval is grueling.

Zacks Rank & Key Picks

VWAGY currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few more top-ranked players in the auto space include Wabash National WNC and Modine Manufacturing MOD, both sporting a Zacks Rank #1.

Wabash is one of the leading manufacturers of semi-trailers in North America. The Zacks Consensus Estimates for WNC’s 2023 sales and earnings imply year-over-year growth of 13.06% and 24%, respectively.

Modine operates primarily in a single industry consisting of the manufacture and sale of heat transfer equipment. The Zacks Consensus Estimates for MOD’s 2023 sales and earnings imply year-over-year growth of 11.43% and 43.09%, respectively.

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Volkswagen AG Unsponsored ADR (VWAGY) : Free Stock Analysis Report

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