Volkswagen AG has cut its full-year operating return on sales forecast, and the stock continued to decline on Monday due to a challenging market environment and an asset impairment charge related to its stake in Porsche. The German automotive stalwart was removed from the Euro Stoxx 50 blue-chip index, with Finland's Nokia taking its place, benefiting from the surge in artificial intelligence demand.

Deutsche Bank analysts noted that while this profit warning appears severe on the surface, the company's cash generation capability remains intact.

The embattled German automaker issued another profit warning and was subsequently removed from a European blue-chip index, causing Volkswagen AG (VOW3-DE) shares to move lower on Monday. Volkswagen reduced its operating return on sales forecast from a previous range of 4% to 5.5% down to a maximum of 1%. Following the announcement, the stock had already plunged 8.3% on Friday; during midday trading on Monday, shares fell another 0.5%.

The company attributed its weaker performance to an asset impairment on its significant holding in Porsche, a "further deterioration" in market conditions, particularly in China, and restructuring-related expenses. Volkswagen added that "the acceleration in customer demand toward purely electric vehicles... has led to results falling short of initial expectations, with the Audi and Volkswagen passenger car brands particularly impacted."

Additionally, Volkswagen was officially removed from the Euro Stoxx 50 index on Monday, following the official announcement of the index's annual review earlier this month. The index adjusts its constituents each year to reflect the leading companies across major sectors in the eurozone.

Volkswagen's shares have fallen 27.5% year-to-date, with the stock price currently hovering near levels not seen since 2010. Despite receiving approval earlier this month to advance a new large-scale streamlining and restructuring plan, the company's downward trajectory remains unchanged.

Volkswagen is currently grappling with shrinking profits, pressure from local competitors in China, tariff issues, and the challenges of its electric vehicle transition.

Deutsche Bank analysts stated on Monday that although this profit warning "looks very severe at first glance," it "significantly exaggerates the actual deterioration of the core business." In their research note, Deutsche Bank indicated that Volkswagen's earnings guidance includes a 10 billion euro one-time impact on this year's profit; excluding that, the core business operating margin remains around 4%, with cash generation staying intact.

Volkswagen's removal from the Euro Stoxx 50 index reflects the difficult position of the entire European automotive industry. European car manufacturers are under pressure from rising costs and intensifying global competition, while also struggling to cope with rapidly shifting consumer demand for electric and hybrid vehicles. A year ago, Stellantis, which produces Jeep and Dodge, was already removed from the blue-chip index due to operational issues.

In the latest Euro Stoxx 50 reshuffle, Volkswagen's seat has been filled by Finland's Nokia. Nokia is fully capitalizing on the AI-driven business boom, thanks to its critical position in data center networking connectivity.