(Bloomberg) — Volkswagen AG cut its dividend after losing 2.4 billion euros ($2.8 billion) in the second quarter, when the Covid-19 pandemic shuttered showrooms and factories in key markets.

The German manufacturer lowered its proposed 2019 payout by a quarter to help save roughly $1 billion after global deliveries contracted in the six months through June. VW expects markets to recover in the second half after business in July improved from the previous month.

The results show the dramatic impact of the industry’s biggest slump since World War II. Europe’s largest automaker cut its full-year outlook in April, echoing peers and parts suppliers that trimmed expectations after the pandemic spilled from China to Europe and North America. While profits largely tanked during the health crisis, including a record $8.6 billion loss at Renault SA, rivals including Daimler AG, General Motors Co. and PSA Group managed to weather the downturn better than feared.

“The first half of 2020 was one of the most challenging in the history of our company due to the Covid-19 pandemic,” VW Chief Financial Officer Frank Witter said. VW’s shares fell the most in seven weeks.

Restoring operations to pre-crisis levels is critical for Volkswagen after it rolled out a fresh iteration of the important Golf hatchback and plans to start delivering the all-electric sibling ID.3 to customers in September. Success of the ID.3 is vital to comply with stricter emission rules in Europe and catch up with Tesla Inc, which in recent weeks zoomed past traditional manufacturers to become the world’s most valuable automaker.

The dividend cut is designed to conserve cash after VW burned through more than 2 billion euros in the second quarter, the period worst hit by the pandemic.

Revenue slumped by more than a third to 41.1 billion euros in the three months through June, roughly in line with analyst estimates compiled by Bloomberg. The second-quarter loss compared with a profit of 5.13 billion euros a year earlier.

On top of the broader market turmoil, the fallout from the diesel scandal continues to haunt the company five years in. Witter said he expects cash outflow related to the engine rigging to rise to 2 billion euros in the second half of the year, from 1.6 billion euros in the first half.

VW fell as much as 6.5{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} in Frankfurt, the steepest intraday drop since June 11.

What Bloomberg Intelligence Says:

A 26{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} cut to VW’s dividend still means 2.4 billion euros of 2H cash outflow — following a better-than-expected 2 billion-euro cash burn in 2Q — suggesting management is eyeing a 2H recovery, particularly in China where earnings recovered strongly in 2Q. That said, a 3 billion-euro hybrid bond was needed to shore up net industrial cash.

— Michael Dean, automotive analyst

Click here to read the research

Its results still look less worrisome than those of French peer Renault, which on Thursday said it lost 7.3 billion euros in the first half as it grappled with the downturn and increasingly dismal results from partner Nissan Motor Co.

VW stuck to its lowered forecast from April that sees global deliveries, revenue and operating profit falling “severely” this year, but the manufacturer still expects to make a profit on a full-year basis.

That’s largely because markets have started to recover, with July deliveries down by less than 10{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} after buyers returned to showrooms in several countries.

Porsche’s Resilience

The Porsche brand proved relatively resilient in the first half, recording an operating profit thanks to deliveries that declined just 15{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811}.

VW’s Audi swung to an operating loss after sales plummeted. The premium-car division embarked on a deep restructuring last year to revive squeezed margins at what used to be the group’s biggest profit contributor. New chief Markus Duesmann this month pledged to seize the virus-related slump to make the carmaker more nimble.

While Volkswagen aims to more than double its market capitalization to 200 billion euros, it’s currently worth less than 70 billion euros after its shares fell by about a quarter since the beginning of the year.

The company is determined to lift its value by reducing complexity and consistently meeting financial targets, Witter told reporters during a call. While the sale of industrial gearbox maker Renk AG should be completed by year-end, VW abandoned considerations to divest the MAN Energy Solutions machinery business and will restructure the unit instead, he said.

VW’s takeover offer for U.S. truck maker Navistar International Corp. “is on the table,” but mot much has happened in recent weeks because of the pandemic, Witter said.

(Updates with details on VW’s cash outflow in paragraph eight.)

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