Volkswagen's Americas-Built SUV Offensive And Product Launch Plans 2017-2023

Summary

• Volkswagen goes America: Two new VW SUVs now made on this side of the Atlantic, including one in Tennessee.
• In the month of June, the U.S.-made VW Atlas SUV (large 3-row) constituted almost 10% of the company's U.S. unit sales in its first full month of availability.
• Its U.S. sales are up 8.2% year to date and 15% in June alone. This points to 350,000 U.S. sales in all of 2017, and with a richer SUV mix.
• To illustrate how Volkswagen is now leaving some other automakers in the dust, consider that Tesla will sell barely more than 100,000 cars worldwide in 2017.
• This article also details the company's product launch schedule between now and 2023, including the several next all-electric cars.

This week of July 4, Independence Day, we take a look at an example of how one automaker is becoming more American, as measured by final assembly production. It's a story of bringing production from Europe to the American continent in general, and in part to the U.S. specifically.

Less than a year ago, the Volkswagen (VLKAY, OTCPK:VLKAF, VLKPY) brand sold only two SUV models in the U.S. market: Touareg and Tiguan. These two SUVs captured relatively small market share in the U.S., with lower sales than almost all of Volkswagen's competitors.

Both the Tiguan (starting price approx $25,000) and the Touareg (starting price around $50,000) are made in Europe. Around early to mid-2017, this situation changed.

First, the Atlas.

VW Atlas is Volkswagen's large 3-row SUV, competing with segment volume leaders such as the Ford (F) Explorer, Honda (HMC) Pilot, Nissan (OTCPK:NSANY) Pathfinder, Toyota (TM) Highlander and Chevrolet (GM) Traverse with a towing rating of approximately 4,000-6,000 lbs. The VW Atlas went on sale in May 2017. In June, it constituted almost 10% of the company's U.S. unit sales.

The VW Atlas is not made in Europe. It is made in Tennessee, alongside the VW Passat in Volkswagen's Chattanooga factory. The capacity is in place to produce at least approximately 100,000 of these large Atlas SUVs per year, assuming there is demand. Production and sales are likely to be a bit less than that during the Atlas's first year of production, 2017. And yes, the VW Atlas will be exported from the U.S. to other countries, although not to Western Europe.

Second, the (new) Tiguan.

This gets a little confusing, because Volkswagen will continue to sell the existing Europe-built Tiguan in the U.S. for some unannounced amount of time - perhaps a few months, perhaps a few years.

However, most of the Tiguan emphasis going forward will be on the all-new Tiguan that goes on sale in the U.S. near the end of July 2017. This too is in itself a bit confusing. The all-new Tiguan already went on sale in Europe in the second quarter of 2016. However, this was a shorter version of the Tiguan, including a shorter wheelbase. It was closer in size to the previous-generation Tiguan.

That shorter version has no option for a third row of seats. For whatever reason, it also won't be sold in the U.S. Instead, the U.S. gets only the long-wheelbase version of the new Tiguan. In Europe, it will be called Tiguan Allspace. In the U.S., it will be called simply "Tiguan." See details here.

It will also be made in Mexico, alongside many versions of Volkswagen's other volume models, such as Golf, Jetta and Beetle. VW sold 43,638 Tiguans in the U.S. in 2016.

There are at least three reasons why VW had better sell a lot more Tiguans in the U.S. going forward than it managed to do in 2016:

1. The company will have two - sort of almost three - major versions of the Tiguan on sale. First, the old model made in Germany. Second, the two-row version made in Mexico. Third, the three-row version also made in Mexico.

2. The fuel economy of the new Tiguan is much better than the old one - new engine, new transmission, and more aerodynamic body. The new Tiguan gets 27 MPG on the highway, whereas the old one got only 24 MPG despite being much smaller.

3. The small-to-almost-midsize SUV segment keeps growing as a share over the overall new light vehicle market.

Given all of those factors, it would really be a shame if VW couldn't manage to sell all the versions of the Tiguan at an annualized pace of at least approximately 100,000 units per year in the U.S., starting sometime in the second half of 2017. Keep in mind that the segment volume leaders in this space - Nissan Rogue, Honda CR-V and Toyota RAV4 - are almost knocking on the 400,000 a year door for the U.S. market. With that as perspective, surely VW should be able to break 100,000.

In case it hasn’t dawned upon you yet, what all this means is that less than 30 days from now, Volkswagen USA will have gone - in a matter of less than 90 days - from selling two SUVs, both made in Europe, to four SUVs, two of which are made in the Americas. That's a lot more cars that aren't put on boats from Europe to the U.S.

But wait, there's more!

Volkswagen owns Audi. What's Audi's best-selling vehicle in the U.S. market? The Q5 midsize SUV, to the tune of approximately 50% year to date 2017.

Well, where is the Audi Q5 made? Trick question! It has recently changed. Until late 2016, the Audi Q5 was made in Europe. Starting in late 2016, production of the all-new Q5 commenced in a brand-new factory in Mexico, and it went on sale in the U.S. in March 2017.

Therefore, looking beyond the VW brand and more to the Volkswagen Group as a whole, the shift to making SUVs in the Americas is even more pronounced.

Volkswagen is tied with Toyota for being the largest automaker in the world, barely ahead of General Motors and the Nissan Group (Nissan, Infiniti, Renault, Dacia and Mitsubishi). As has been the sore point for decades, while VW has enjoyed massive success in Europe and China, it has underperformed dramatically in the U.S. market. Of course, the VW Group has enjoyed massive success in the last 25 years with its Audi and Porsche brands.

For the first half of 2017, the underperformance of the Volkswagen brand in the U.S. market looks like it’s changing. In a U.S. market that’s down approximately 3% year to date, VW is up 8.2%.

That means the automaker is outperforming the market by over 10%. And this is a trend that's accelerating, not the other way around. In June, VW was up a whopping 15% in the U.S.

What are the next steps for the Volkswagen brand in the U.S. market?

Actually, there are at least six major steps. Let's spell them out one by one:

1. The refreshed Golf arrives this quarter, with new interiors, new exterior fascia and some new powertrains. This includes the all-electric eGolf with 50% longer range than the 2017 model year version (124 miles instead of 83).

2. The all-new Jetta arrives in the second quarter of 2018, with more differentiation from the Golf than in the previous generation. For the first time, the Jetta will be based on the MQB platform.

3. The all-new premium sedan, Arteon, arrives in the third quarter of 2018, one year after sales started in Europe.

4. The all-new Passat arrives in late 2018 or in 2019. For the first time, the U.S. Passat will be based on the MQB platform.

5. An entirely new compact SUV, slightly smaller than the Tiguan, should arrive by 2019.

6. An all-new electric car platform group of vehicles starts arriving in the U.S. market in calendar year 2020. The Instablog post here has all the details on these all-electric cars.

It's really amazing, when you think about it: Volkswagen found itself in troublesome hot water less than two years ago. But now, in 2017, sales are up 8.2% for the first half of the year, and in June, sales were up 15%. With these new VW SUV models built in the Americas, including one in the U.S., it would appear that the company could continue to outperform the U.S. market averages for many quarters to come.

At the current growth rate, Volkswagen is on a path to sell 350,000 cars in the U.S. market in 2017. In comparison, Tesla (TSLA) will struggle to exceed 100,000 sales on a global basis. I would be very surprised if Tesla exceeds 115,000 by much, if at all. My estimate is 104,000.

In other words, Volkswagen will most likely sell at least three times as many cars in the U.S. in 2017 as Tesla will sell worldwide for the year. Let that sink in.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I am/we are long F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

At the time of submitting this article for publication, the author was long GM, F and GOOGL. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers. Volkswagen hosted a product launch event.