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Volkswagen’s Surprisingly Low Valuation


Volkswagen, known as one of the largest auto makers globally, has set its sights on increasing sales of electric vehicles in the United States. However, for U.S. investors, the key question revolves around the valuation of Volkswagen stock.

At first glance, Volkswagen appears to be undervalued. In 2023, the company sold an impressive 9.2 million cars, yet its market capitalization stands at a mere $63 billion. In comparison, Toyota Motor sold approximately 10 million cars and holds a market capitalization of about $260 billion.

This valuation conundrum doesn’t end there. Volkswagen boasts a significant cash reserve of around $50 billion, surpassing its debt load. Additionally, the company owns about 75% of Porsche’s stock, which is valued at roughly $55 billion. Taking these factors into account, when cash and Porsche shares are deducted, Volkswagen stock’s worth equates to approximately negative $40 billion.

Such a disparity makes little sense. Volkswagen Chief Financial Officer, Arno Antlitz, questions this predicament by stating, “Why is our stock trading like that?” It is plausible that the undervaluation reflects a wider trend among European companies in the industry.

To illustrate this point further, consider Stellantis, which currently possesses a market capitalization of around $63 billion. However, when accounting for cash and leasing adjustments, the value drops to approximately $30 billion. Consequently, Stellantis shares are trading at only 2 times the estimated 2024 earnings. BMW shares trade at roughly 3 times earnings, while Ford Motor and Toyota shares trade at approximately 4 times earnings after adjustments. As for General Motors (GM), their stock trades at around 3 times earnings. Remarkably, Volkswagen shares are trading at a negative 3 times earnings.

Another challenge for Volkswagen lies in its complexity. With numerous brands under its umbrella, including Porsche, Audi, Skoda, Lamborghini, and Bentley, the company’s structure can be overwhelming. Additionally, Volkswagen possesses an EV-battery company called PowerCo.

Acknowledging this complexity, Antlitz aims to streamline operations by exploring the possibility of external investors for PowerCo. He further suggests a potential initial public offering (IPO) for PowerCo, similar to the successful IPO of Porsche in 2022.

While the Porsche IPO failed to rectify Volkswagen’s valuation issues, it did provide some value to shareholders. VW distributed special dividends of €19 ($20.66) per share as part of the Porsche IPO.

Volkswagen’s Capital Return Strategy

Volkswagen has a unique approach to returning capital to its shareholders. Instead of fixed dividends, the company prefers to pay variable dividends annually. The aim is to distribute around 30% of its total profits. Over the past decade, Volkswagen has paid out approximately €35 billion ($38 billion), which accounts for about 31% of its total profits.

Electrification Strategy

Investors often wonder about Volkswagen’s valuation, but it’s a difficult question to answer. Instead, it’s crucial to focus on other aspects, such as the company’s electrification strategy. According to Antlitz, Volkswagen has seen positive results in this area. In 2023, battery electric vehicle (BEV) sales across all its brands exceeded 770,000 units, showing a significant increase of about 35% compared to the previous year. Furthermore, BEVs accounted for over 8% of total car sales, up from approximately 7% in 2022.

Strong BEV Sales in the U.S.

Volkswagen experienced impressive growth in BEV sales in the United States, with an increase of approximately 60%. The total number of units sold reached around 70,000 in 2023. This success can be attributed to the popularity of five particular models, each selling over 5,000 units during the same year. In comparison, only three models achieved this milestone in 2022.

Expanding BEV Range

Volkswagen believes there is still significant potential for BEV growth, as more models are introduced to the market. Antlitz states that only a small number of segments have been electrified so far. However, with upcoming models like the ID Bus, ID.7, and Q6 E-Tron, the range of Volkswagen EVs will expand further. The company also plans to offer EVs priced under $35,000 in the future.

Profitability of BEVs

Some investors may be concerned about the profitability of BEVs compared to traditional cars. However, Volkswagen does not foresee any profit issues. The company is aiming for “margin parity” on certain EV models by 2025, which means achieving operating profit margins of 7% to 8%. This goal can be accomplished through lower battery costs and increased manufacturing scale.

Solving Volkswagen’s Valuation Conundrum

Potentially, BEV profits can play a significant role in solving Volkswagen’s valuation conundrum. Despite other attempts, the company’s valuation has remained a challenge. By capitalizing on the success of BEVs and striving for higher profitability, Volkswagen aims to address this issue.

Challenges in the Auto Industry Despite Potential Good News

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