Should I sell Volkswagen shares after the company reported that it would suspend its business in Russia?

Volkswagen shares have weakened more than 20% last trading week, and the company reported that it would suspend its business in Russia.

Supply chain issues continue to pose downside risks

The war between Ukraine and Russia continues to cause supply chain issues to automakers as they struggle to source parts from overseas besides sanctions hindering shipments to and from Russia.

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Volkswagen reported last week that it would suspend its production at Kaluga and Nizhny Novgorod, and the company will not export vehicles to Russia. Volkswagen reported:

With the extensive interruption of business activities in Russia, the group management board is drawing the consequences from the overall situation, which is characterized by strong uncertainty.

Toyota Motor also announced recently that it would suspend auto production in Russia, and many other companies are considering doing the same.

Supply chain issues continue to pose downside risks, and many big companies in the auto industry scaled back production of some of their largest, most profitable models.

Another negative news for Volkswagen is that new commercial vehicle registrations in the European Union fell 11.1% to 125,292 units in January. This came after an 8.4% decline in December while recent developments of the ongoing Russian invasion of Ukraine have material negative short and medium-term humanitarian consequences as well as potentially longer-term implications for many companies.

This is very dangerous for the automotive industry because this industry has been affected significantly by the coronavirus pandemic, and many automobile companies have seen revenues drop by double digits.

Fundamentally looking, Volkswagen trades at less than four times TTM EBITDA, the company has the ability to mitigate cost pressure vs. smaller peers amidst supply chain issues, and with a market capitalization of €87 billion, shares of this company are fairly valued.

Technically looking, Volkswagen shares could fall even more in the upcoming weeks, the uncertainty of potential outcomes between Ukraine and Russia continues to worry investors, and probably it is not the best moment to buy Volkswagen shares.

Technical analysis

Volkswagen’s stock price has fallen more than 40% after reaching the highest level in 2021 of €250 on March 18, and for now, bears remain in control of the price action.

The important support levels are €120 and €100; €140 represents the first resistance level. If the price falls below €120, it would be a firm “sell” signal, and we have the open way to €100.

On the other side, if the price jumps above €140, the next target could be around €150.

Summary

Volkswagen reported last week that it would suspend its production at Kaluga and Nizhny Novgorod, and the company will not export vehicles to Russia. Volkswagen’s stock price has fallen more than 40% after reaching the highest level in 2021 of €250 on March 18, and if the price falls below €120, the next target could be €100.

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