Moody's Investors Service has revised its outlook on Volkswagen AG, Europe's leading car manufacturer, from 'stable' to 'negative'. This decision comes as a result of Volkswagen's deteriorating operating performance and the significant challenges it faces in reversing this trend. The rating agency cited low global volume growth, particularly in China and Western Europe, increasing price pressures, potential EU CO2 emission fines, and additional restructuring costs as key factors influencing this downgrade.

Volkswagen's struggles are further underscored by a reported 7% decline in third-quarter global deliveries. The company, which is undergoing a major restructuring, is grappling with weak demand from China, high production costs in Germany, and the competitive pressures of vehicle electrification. The potential for a trade war between the European Union and China, due to EU tariffs on Chinese electric vehicles, adds another layer of complexity to the situation.

In China, Volkswagen's most crucial market, deliveries fell by 15%, contributing significantly to the global decline. The company is also facing stiff competition from local Chinese manufacturers offering more affordable electric vehicles. Despite efforts to cut costs and boost electric vehicle sales, Volkswagen's global electric vehicle deliveries fell by 9.8% in the third quarter.

The challenges are not unique to Volkswagen, as other European carmakers like BMW and Mercedes-Benz are also experiencing sluggish demand and increased competition in China. However, Volkswagen's situation is particularly acute, prompting the company to lower its annual sales outlook for the second time in three months, now expecting to deliver around 9 million vehicles this year, down from previous estimates.

Volkswagen is taking steps to address these issues, including price reductions on its electric models like the ID.3, in an effort to boost sales and meet EU CO2 targets. However, the company acknowledges that more affordable electric models, such as the planned ID.2 and ID.1, will not be available until 2026, which may impact its ability to meet regulatory requirements in the near term.