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German Shares Rally; Volkswagen Surges on Approved Transformation Plan

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German equities gained on Friday, with the blue-chip DAX index closing 0.17% higher, as Volkswagen (VOW.F, VOW3.F) announced the approval of the "most extensive transformation program" in its history.

The German carmaker surged to the top of the DAX, rising 6.10%, after its supervisory board approved its Future Plan 2030 transformation strategy. The plan focuses on structural simplification, production competitiveness, and workforce realignment, which includes cutting 50,000 positions across the group.

"To be clear, today's agreement does not solve Volkswagen's challenges overnight. It merely marks the beginning of the next phase, and execution remains key. However, it removes one of the biggest investor concerns: whether the company is still capable of making the difficult decisions required to address them," Deutsche Bank Research said.

Following Volkswagen's announcement, Porsche Automobil Holding (PAH3.F), d/b/a Porsche SE, committed to offering continued support for the transformation efforts at its core investment. The holding company owns 53.3% of the ordinary shares and 31.9% of the subscribed capital of Volkswagen. Porsche SE climbed 3.96% at the end of the trading session.

In economic news, Germany's new manufacturing orders rose 2.5% month over month in July, beating an expected 0.3% uptick and following a revised 3.7% increase in June. The headline result was driven primarily by major contracts across aircraft, trains and ships, where a 126.4% jump in heavy transport orders helped offset a 12.5% drop in the automotive sector.

Meanwhile, Germany's construction sector remained in contraction territory in August, although the rate of decline in total activity markedly slowed as commercial activity bounced back for the first time in over a year. According to S&P Global, the German Construction PMI Total Activity Index rose to an eight-month high of 48.7 from 42.1 in July, nearing the 50-point neutral mark.

On the geopolitical front, Reuters reported, citing three senior Iranian sources, that increasing US efforts to choke off Iran's oil exports and foreign financing are pushing the country into a critical economic position. While Washington aims to leverage this strain to force long-sought negotiations, Tehran's warnings of potential military retaliation could further escalate the conflict, the publication added.

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