VW: BUY

2Q EARNINGS RELIEF ON THE WAY!

China has been a well known issue for the autos.

With over 40% of profits from the region last year, VW has not been immune.

The two main issues have been accelerating pricing pressure with VW’s premium a problem (likely to be subtly addressed in the coming months).

Secondly the lack of a competitive SUV which has been most of the Chinese growth ytd.

However, performance in Europe is better than expected, with the product cycle helpful given increased consumer spend, and set to improve the VW brand margin after a poor 1Q

VW has had a 20% pull back with the DAX. More and more noise has been made of these Chinese problems and the fact that in previous QE examples the autos tend not to rally post the initial surge.

However near term earnings are not at risk, and we expect to see relief into 2Q as VW is one of the best-positioned global car makers.