Margin squeeze, EV battle, and energy capex drought Margin squeeze, EV battle, and energy capex drought Margin squeeze, EV battle, and energy capex drought

Margin squeeze, EV battle, and energy capex drought

Equities 8 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  The Q3 earnings season is showing that there is strong demand in the global economy and especially for technology services, but profit margins are under pressure due to rising input costs across commodities and wages. That will create a new and much more challenging environment for equities. Volkswagen has reported Q3 earnings today showing that the German carmaker is losing momentum against Tesla. Finally, we take a look a capital expenditures in the energy sector which are still at a five-year low and not indicated to increase significantly in the short-term.

With 40% of the S&P 500 companies having reported Q3 earnings we now have a good picture of the corporate sector in Q3. Revenue is up 0.2%, 1.5%, and 3.1% q/q for MSCI World, S&P 500, and Nasdaq 100 respectively indicating good momentum on the top line. However, earnings per share is rising much less and is even negative for MSCI World (-1.2% q/q), causing net profit margins to shrink for the first time in five quarters.

Rising energy prices and commodity prices in general will put enormous pressure on input costs. But as if commodity prices were not enough, wage pressures are also accelerating in many industries and recently the US quit rate (the percentage of labour force voluntarily quitting their work) has shot up to almost 3%, the highest level ever observed since the time series was started in 1999. In other words, companies are under pressure from all sides on their costs, and even interest rates are beginning to rise again. The last time we had a declining profit margin environment was from Q2 2018 to Q4 2019 before the pandemic were equities had a troublesome period only saved in the last months before the pandemic because falling interest rates were causing a “there is no alternative” trade in equities.

Volkswagen is losing momentum against Tesla

Tesla is on a tear recently due strong Q3 delivery figures, a big order from Hertz, and a new battery from its key supplier Panasonic. In that light, we were greatly anticipating Volkswagen’s Q3 figures today as the German carmaker is the only real contender today to Tesla’s rise in the transition to EVs. Volkswagen reported Q3 operating margin under pressure due to supply constraints on semiconductors, even the volume brand was making an operating loss in Q3. However, the CEO said that he expect the semiconductor constraints to start easing in Q4, and that 2022 will be a much better year than 2021 for the industry.

Volkswagen delivered 122,138 EVs in Q3 up only 10% q/q compared to Tesla’s 20% q/q gain driven by Tesla’s ability to write working software in just three weeks to circumvent a shortage for a specific semiconductor chip. While Volkswagen is losing a bit of momentum in the short-term we expect 2022 to the defining year for industry and where we will finally see whether Tesla is able to keep Volkswagen at the second spot in EV during ramp-up of production.

Lack of capex in energy and mining will continue to cause problems

This week we have had Equinor, Royal Dutch Shell, and TotalEnergies reporting Q3 earnings all beating expectations, and tomorrow we will get earnings from Exxon Mobil and Chevron. The conclusion from these large energy companies is that revenue and profitability are improving fast due to rising energy prices, but they are not willing to increase capital expenditures (CAPEX) despite the outlook looking strong. The two charts below show the CAPEX drought that we are currently facing in the world and which will continue to hold supply constrained amid rising demand. Global energy companies are currently prioritizing reducing debt, and paying back shareholders through dividends and buybacks of own shares.


The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.