Entering text into the input field will update the search result below

Volkswagen: A Structural Winner In The EV Transition Race

Jan. 01, 2022 11:54 PM ETVolkswagen AG (VLKAF), VLKPF, VWAGY, VWAPYQS, TSLA57 Comments


  • VW has the largest investment spend, among global automotive manufacturers, into EV and software.
  • With plans to build 6 gigafactories by 2030 as well as a unified cell strategy for its EV platform, VW is pushing ahead with high growth in its EV segment.
  • VW is ahead of the curve as it is building an in-house battery production capability and investing further upstream, securing battery supply and controlling battery costs.
  • Based on my 2025 forecasts, my estimate for VW's target price is EUR313, which implies a solid 75% upside potential.

Cutaway view of Electric Vehicle Chassis with battery pack on black background

Chesky_W/iStock via Getty Images

The transition towards Electric Vehicles (EV) is happening today and gaining momentum as EV penetration accelerates globally. Bloomberg estimates that about 5.6 million passenger EVs will be sold this year, which is almost double that sold

This article was written by

Simple Investing profile picture
Simple Investing is a former hedge fund and long-only portfolio manager with a track record for outperformance. He managed more than $1 billion in AUM, and is a CFA charter holder who holds degrees in Finance and Accounting. He runs the Investing Group Outperforming the Market. While having a pure growth or pure value portfolio may do well in certain markets, it leaves investors vulnerable to certain investment styles going out of favor. The objective of Outperforming the Market is to outperform the S&P 500 across market cycles. This is achieved through The Barbell Portfolio, which is comprised of high conviction growth and contrarian/value stocks. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of VWAGY either through stock ownership, options, or other derivatives. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (57)

Tdot profile picture
Unfortunately there remain a lot of lingering negative biases against VW and their attempt to redeem themselves over "dieselgate" with EVs.

Of course the vast majority of those are teslophile cultists in the peanut gallery, who want to poo-poo other heretical automakers who dare to make EVs. For the time being they are happy to laugh and sling their feces around, it is all they have. Rather than praising other automakers for "following in the footsteps" of the Musky Lord of Tesla, they hypocritically heap scorn, showing it is nothing short of a religion to them.

It reminds of the old Emo Philips skit over religion: Are you Northern Conservative Fundamentalist Baptist Great Lakes Region Council of 1879? Or are you Northern Conservative Fundamentalist Baptist Great Lakes Region Council of 1912? 1912. 1912?? DIE HERETIC!!! I CAST YOU OUT, EVIL SPIRIT!!!

But yes, it is actually useful to get an unbiased assessment as to where VW is in their transformation to EVs, seeing as they are the #1 or #2 automaker in the world (the title going back and forth with Toyota), after what some saw as an existential crisis that should have end in bankruptcy over regeneration of diesel exhaust catalyst, to listen to the fanatical hoards of teslophiles.
Simple Investing profile picture
@Tdot Thank you, appreciate this!
Georgy Shishkov profile picture
I rarely say it, but this is a very good article. Thank you!
Simple Investing profile picture
@Georgy Shishkov Hey thank you, appreciate this lots!
VW is losing ground so fast in China there’s no way they will catch up. Especially with their batteries.
@Thistledo false statement that you can lookup in global sales of their presentation.
Tdot profile picture
While VW sales were down about 14% in China in 2021 due to chip and supply chain shortages, they still sold 3.3 million vehicles there.

Tesla sold just 473k in China in 2021. Even Ford sold more in China than Tesla, at 624k units.
@Tdot darn pesky facts
HiSell profile picture
Your thesis about VW pivoting to EVs seems sound in theory until you look at its balance sheet- EU120b of net debt. It will get a bit of reprieve from the sale of Porsche (Ferrari market cap $40bn). But taking on Tesla is herculean, TSLA's operating system is its USP and it's constantly upgrading, I consider it the iOS of cars. I own a Tesla and an Audi- iPhone vs Nokia, and the Tesla was 30% cheaper after you add Audi's rapacious options.

Tesla generates a gross margin of $10,000/car, debt-free and a market cap of VW, Merc, BMW, Toyota combined. I don't own Tesla shares, sadly I didn't have the vision to buy early, but I can see why it's so highly valued. Finally, your analysis ignores Hyundai which is already selling well-priced, high-quality EVs globally.
VW is loaded with debt. All technical / software issues aside, this is important to mention, especially in an environment that might see a hike in rates.
Nick Cox profile picture
Yes,their debt load is a rather under-appreciated negative for VW.It's about 4 times their market cap.
Tdot profile picture
Nick, no. Not if that "debt" is mainly in the form of consumer and dealership financing. You have to look at the EQUITY book value, which is the value of the assets minus the liabilities including the debt.

If the "debt" is earning billions on interest rate differentials in financing purchases, then what you have is a Bank.

As of the 3Q21, VW's Balance Sheet showed Shareholder Equity Book Value at $119 billion for the automotive division, plus $42 billion on the financial services side. Over $160 BILLION in Equity Book Value after debts and liabilities. The "debt load" is trivial.
Zed Asset Management profile picture
@RJWi It is debt in its financial services arm and is non recourse to the auto business
Bobstert profile picture
Discussion of VW ADR's:

Nick Cox profile picture
"Ahead of the curve" ??
Hmmm...even their CEO admits they are 3 years behind Tesla.
And in the world's largest car market, they are being hammered.
Tdot profile picture
You never did provide any proof that VW's CEO said they were 3 years behind Tesla. What's up with that?
Nick Cox profile picture
Just search on Google,it's not difficult
Tdot profile picture
Already did, there are no such results.
RJMC profile picture
I am going to start a position. Nice article.
Simple Investing profile picture
@RJMC Thank you! All the best for your portfolio in 2022!
I like the thesis, but seems like a long term play. Have been in and out but maybe I will build a core position.
Simple Investing profile picture
@Seeburto Thank you. Definitely a long term play with great fundamentals today.
Thank you. I have been looking at VW as well and agree with the general findings. I do have my questions on how the valuation is established though. A P/E of 12 equates to a 0% growth in Earnings in perpetuity based on a discount factor of 10%, which is what is commonly used. What has been the historical P/E of VW and does the author believe that Earnings in 2025-2030 will indeed match current earnings?
@johanvdwerf $200 billion in debt
No joke. And they plan to "invest" $80bil+ into EV's and software development.
@purrpullberra thanks for the add on. I didn't elaborate further in my comment, but I struggled with the authors approach of using P/E for exactly those reasons. The P/E of 12 is rather grabbed out of thin air in this article, although there might be further details behind it not shown. I think an EV / CF metric would be far more suitable, as it takes into account both the high debt and the CAPEX.
Tdot profile picture
Most automakers in the industrial manufacturing sector get a valuation of about 8-12x earnings, depending on if they are expected to be growing or not.

P/E is a pretty fundamental metric for a relatively stable business with units of years. It essentially establishes the number of years of current and expected profits that would be required to buy back the shares at current pricing. In that regard, it is a little like a mortgage loan term. A higher P/E also suggests there is a less likelihood of bankruptcy in the time frame.

But many economists prefer not to focus too hard on P/E for discretionary cyclical stocks like automotive, which can be severely impacted by economic swings. Risk of bankruptcy can be high from uncontrollable external factors, like wars and terrorist attacks and such. The COVID shutdown in Spring 2020 put a severe pinch on all automakers, and there was talk of some seeking bankruptcy protection if they were forced to remain shut down in terms of manufacturing and generating revenues.

In any case, some experts prefer P/B - Price to Book (Liquidation Value), aka Price to Equity, as a more stable and dependable measure of how a cyclical company that depends on discretionary spending is valued, and in comparing cyclical peer valuations.
EVs failed in the early 20th Century and they will fail again in the early 21st Century. Anybody who thinks driving a 2-ton compact car is environmentally sound is showing the same ignorance as the Big Three did in the early 1970s—right before the Japanese automakers kicked their butts.
@locum2 2 ton combustion or 2 ton EV? what's the difference. At least you're not turning building walls black and polluting the air with a EV. The adoption rate is too high, EVs are here whether you like it or not
@locum2 Please google:

"Factcheck: How electric vehicles help to tackle climate change"

"Electric cars have much lower life cycle emissions, new study confirms
In the US, life cycle emissions for EVs are already 60-68% lower than gasoline."

EVs are integral part of fighting climate change, it has been proven, reviewed, over and over by scientists worldwide.
@Keng Yuan Chang
Yep and China will continue having to rely on coal to power them
VW does not make "gigafactories". Only Elon Musk makes gigafactories. Elon has a penchant for giving things names that they are not. We have gigafactories, starships, cybertrucks, plaid models, and full self driving. The guy just watches too many sci fi shows.
@sr1952 lol indeed. Why we can’t call it a battery factory I don’t know
@sr1952 Haha, maybe that's based on their initial annual output goal, maybe there are gonna be terrafactories in a few years time.
@Keng Yuan Chang the Austin factory is being touted as a terafactory.
Logical Thought profile picture
It's smarter to buy VWAPY: www.wsj.com/...
@Logical Thought Behind a paywall. Also what about POAHY?
Short all legacy automakers. I have .
Long Tesla for the last 5 years. I wouldn’t say that they’ll collapse entirely, but their share of the market will be declining year after year.
@Mreiffel which is already completely embedded in their valuations. VW having a P/E of 5.x implies they will become a lot smaller over time, or seize to exist.

Your strategy was the right one for the last 5 years, but doing the opposite now is likely to work out better based on fundamentals
Excellent article.
Investing a higher amount doesn’t warrant a more successful future necessarily though.
Also worthwhile mentioning, their stake in Rimac gives them a competitive edge on the fast charging 800 Volt technology. Moreover, the licensing of the MEB platform to other manufacturers allows to further reduce the costs.
Simple Investing profile picture
@brankow Great points and thank you!
Eric Bradley profile picture
Canceled my order for Tesla MY, due to be delivered in January. Wife liked Audi Q4 etron more. Was supposed to be available in December. Now being told limited production late Q1, maybe Q2, so hoping that I get my Q4 around April.

I get that there is a chip shortage, but Tesla is shopping product and increasing sales MoM. If VW can’t deliver product, they have a problem.

If W4 delayed past April, I’ll get in line for the Fisker Ocean. I like it most of all, but not available until November, also a highly optimistic shipping date. Also another $10k or so higher price point

@Eric Bradley Just as a heads up, as scaling production especially for legacy automakers is proving to be exceptionally hard with many delay’s furthered by battery and chip shortages I would remain optimistic about ordering a Tesla . I assume your from European and the GIGA factory in Berlin will open this year, or if your American the Texas GIGA factory will open. I would personally wait until then as it would be using the new 4680 battery Technology from Tesla manufactured in-house and exclusively by Panasonic. I’d suggest reconsidering your Tesla Model Y, as its a great car, albeit an expensive one. Keep in mind that Tesla has increased the price $10,000 since the beginning of the year due to the Demand.
Simple Investing profile picture
@Eric Bradley Thanks for sharing Eric, definitely a concern most painfully felt by VW.
Tdot profile picture
The important point is that is is a concern most painfully felt by Tesla. Every Tesla-order or reservation customer that turns instead to another automaker is negative for the musky Tesla Narrative of Exponential Growth Forever, which is the primary basis for Tesla's share price.
It only stands to reason that VW being the largest automaker in the world, they would be the largest EV maker when it all shakes out. They also know how to make a quality automobile. Something that Tesla hasn’t yet learned to do. Just Google ‘Tesla Home Depot parts’. That’s something no other production OEM would do.
Simple Investing profile picture
@NZK91G Definitely a very competitive market and VW has its advantages, but only time will tell. I will continue to monitor the landscape and update more along the way.
@Simple Investing The bet on Tesla includes more than vehicles. The valuation only is reasonable if all the investing thesises around AI, automation, Robotaxis etc. can be fullfilled.
Good grief! Those "Home Depot" fixes wouldn't even be done in a second-rate repair shop. Tesla makes crappy cars and they don't test them properly. Once a company has a few million cars on the road for 10 years problems start showing up. The majority of Tesla's are still less than 5 years old. I wonder what other garbage is in them.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!


SymbolLast Price% Chg
Market Cap
Yield (TTM)
Rev Growth (YoY)
Short Interest
Prev. Close
Compare to Peers

More on VLKAF

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.