Volkswagen is navigating one of the most challenging periods in its modern corporate history.

The German auto giant has been removed from the Euro Stoxx 50, the eurozone's premier blue-chip benchmark, marking its first exit from the index in close to 15 years. Index provider Stoxx made the decision following a routine review, with Volkswagen's share price having tumbled more than 75% from its 2021 peak to hover near levels last seen around 16 years ago.

Traders caution that this passive removal will trigger another wave of selling pressure, as exchange-traded funds (ETFs) tracking the Euro Stoxx 50 will be compelled to liquidate their Volkswagen positions. According to Stoxx data, 30 ETFs currently replicate the index with combined assets of 59 billion euros, while more than 110,000 actively structured products linked to it hold sales volumes exceeding 68 billion euros. Volkswagen responded by stating that "inclusion in an index does not change the company's fundamental strength," insisting the group "remains an attractive investment proposition for investors."

Index change intensifies downward share price momentum

Volkswagen's shares are already deeply entrenched in a downturn. Earlier this month, the company surprised markets with a restructuring agreement with unions, prompting a one-day rebound of more than 9%. That rally proved short-lived, however, as Friday brought a profit warning tied to a 6 billion euro impairment on its Porsche stake valuation, compounded by persistently weak overseas demand and rising restructuring costs, sending the stock down 8.3% in a single session.

Michael Tyndall, senior analyst covering the global auto sector at HSBC, noted that "the entire industry is facing a near existential risk, which is weighing on valuations across the board," adding that Volkswagen's low valuation also reflects market concerns over the cost of its restructuring efforts. Despite the recent bounce, Volkswagen's current market capitalisation stands at roughly 38 billion euros, a stark contrast to its annual sales of 322 billion euros. Simon Jäger, portfolio manager at German asset manager Flossbach von Storch, told the Financial Times that "this market capitalisation sends a very clear signal about how pessimistic investors are toward Volkswagen."

European auto sector collectively fades from the index

Volkswagen's exit is far from an isolated event. Last year, Stellantis, the parent company of Fiat and Peugeot, was removed from the Euro Stoxx 50, after which its shares nearly halved while the company underwent a management overhaul and repeatedly stumbled in its efforts to improve profit margins across the US and European markets.

Joining Volkswagen in departing the index this time is Dutch information services group Wolters Kluwer. Taking their places are Finland's Nokia, the former mobile phone giant that has transformed into a data centre networking provider with backing from Nvidia, and French utility group Engie. Currently, Ferrari, BMW, and Mercedes-Benz are the only three auto stocks remaining in the Euro Stoxx 50. One rival executive commented on Volkswagen's exit, calling it "a symbol of the times," and suggested the reputational damage would far outweigh the impact of the actual capital outflows.

German blue-chip stocks face broad headwinds

Volkswagen's departure reduces Germany's representation in the Euro Stoxx 50 to 16 slots, reflecting the sustained pressure on the country's large listed companies. Stoxx data shows that over the past five years, the sub-index of German constituents has delivered an annualised return of 10.9%, notably lagging the 12.5% recorded by the broader Euro Stoxx 50.

Volkswagen has a history of moving in and out of the index. It first gained entry in 2000, two years after the index was established, then briefly exited between 2010 and 2011 during the global financial crisis before being reinstated and maintaining its membership ever since. In 2008, Volkswagen briefly became the world's most valuable company during a massive short squeeze. Volkswagen stated that its restructuring will improve financial performance and "should also have a positive effect on the share price," adding that the company is focused on "returning to the Euro Stoxx 50 index in the medium term." However, with falling sales volumes, rising US tariffs, and a complex governance structure posing multiple headwinds, the timeline for achieving that goal remains highly uncertain.