VW under pressure as supplier dispute hits production

German car giant Volkswagen, already under pressure due to the emissions scandal, is now facing a costly production slowdown in Germany due to a legal dispute with a supplier of some parts.

Car taking petrol
Source: Bloomberg

A conflict between Volkswagen and one of its suppliers is getting worse, and VW has already had to reduce production of the Passat and may soon have to stop production of the Golf. Europe’s largest car maker has already reduced hours for about 7,200 staff at its Emden plant and confirmed that workers in the factory at its Wolfsburg headquarters will also move to reduced hours from Saturday.

The dispute is with Prevent Group and its subsidiaries that make seat covers and parts for gear boxes. The seat covers are for the Passat model, while the transmission parts are required for completion of about half of all VW vehicles. For that reason, the dispute could also hit production at three more VW plants - Kassel, Braunschweig and Zwickau. 

VW shares plunged from nearly €170 a share to below €100 a share when the emissions scandal broke in September 2015, and while they’ve recovered somewhat, they remain well below the pre-crisis levels. The new supplier dispute is again weighing on the share price. Its preference shares started the week above €126 and they’re now trading at €119.30.

Technical analysis: turnaround still a long way off

A possible turnaround in VW’s share price looks to be even further away due to the supplier dispute. On the monthly charts, the medium-term uptrend line is providing support, but a horizontal resistance line at €134 has previously repelled any attempts to break higher. 

This is not the only hurdle to the north. The falling weighted 20-month moving average, currently at €132.45, and a downtrend line intact since March 2015 and currently sitting at €146.40 offer further resistance.

At the moment, VW preference shares are below the weighted 10-month average, and could go on to test the previously mentioned uptrend support line, currently at €100, by the end of the month. That’s also a key psychological support level.

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