Index provider STOXX has decided to remove Volkswagen from the Euro Stoxx 50 benchmark of large euro-zone companies as part of its periodic review. It is the first time in about 15 years that the German automaker has left the index, ending its continuous membership since returning in 2011.
The removal comes after Volkswagen shares lost more than three-quarters of their value from their 2021 peak, approaching their lowest levels in about 16 years. The company currently has a market capitalization of about 38 billion euros, compared with annual sales of around 322 billion euros.
Portfolio rebalancing puts pressure on shares
Exchange-traded funds tracking the Euro Stoxx 50 hold around 59 billion euros in assets, while more than 110,000 structured financial products are linked to the index, with cumulative sales exceeding 68 billion euros. The change means that passive funds tracking the index will reshape their portfolios to reflect its new constituents, potentially creating short-term technical selling pressure on Volkswagen shares.
Finnish telecommunications company Nokia and French utility group Engie will replace Volkswagen and Dutch professional-information provider Wolters Kluwer. The number of automakers in the index will consequently fall to just three — Ferrari, BMW and Mercedes-Benz — reducing the representation of Europe's auto industry to its lowest level on record, according to the review data.
Stellantis, which owns brands including Fiat and Peugeot, left the index last year. Since then, its shares have fallen by about half amid management changes and difficulties improving profit margins in the US and European markets.
Profit warning and restructuring costs
Pressure on Volkswagen intensified this month after it issued a profit warning that included a 6 billion euro impairment loss related to its stake in Porsche, along with weakness in some overseas markets and rising restructuring costs. The company's shares fell 8.3% in a single session after the announcement, nearly erasing gains made earlier in the month, when they rose more than 9% after the company reached a restructuring agreement with labor unions.
The agreement involves reorganizing the group's operations and cutting around 100,000 jobs as part of efforts to reduce costs and improve financial performance. Analysts attribute the company's weak valuation to uncertainty over the cost and outcome of the restructuring, as well as competition, technological change and the costs of shifting to electric vehicles.
German companies' representation declines
Following the latest change, the number of German companies represented in the Euro Stoxx 50 will fall to 16. Over the past five years, the German companies subindex delivered an annual return of 10.9%, compared with around 12.5% for the Euro Stoxx 50 as a whole.
Volkswagen's relationship with the index dates back to 2000, two years after its launch, before the company temporarily left between 2010 and 2011 in the aftermath of the global financial crisis. It then returned and retained its membership until the current review.
Volkswagen shares recorded one of the sharpest rallies in stock-market history in 2008, after short squeezes drove them to levels that briefly propelled the company's market capitalization to the top of the global listed-company rankings. The group is now facing weak sales in some markets, higher US tariffs and competition from Chinese automakers, as well as a complex ownership and management structure encompassing Porsche and truckmaker Traton.
Volkswagen said that leaving a particular index did not change its underlying strength, and that its ongoing restructuring program should improve financial performance and support the share price over the medium term. The company also aims to return to the Euro Stoxx 50 over the medium term.
