Volkswagen has received a lot of attention since unveiling its plans for EV supremacy, but is the industry giant’s stock a buy right now?
Like a lot of automotive companies, the Volkswagen (OTCMKTS: VWAPY) share price tumbled when COVID-19 set in. However, it didn’t take long for this European giant to recover, with its share price up more than 63% since March 2020 lows. The stock has been taking off since Volkswagen outlined its expansive electric vehicle (EV) plans in March of this year, with many investors unsure which Volkswagen ticker was the right one to buy.
The bull case for Volkswagen
In 2021, Volkswagen expects to sell one million EVs. These will mostly be battery-electric vehicles (BEVs), with these targets being very close to Tesla’s sales forecasts this year.
Volkswagen aims to be the market leader by 2025. Its EVs, including its electric SUV, are on sale in major markets like the U.S., China, and Europe.
Tesla was the EV company that had been receiving most of the love for the past year, leading to an $800 per share peak. However, Tesla has been caught up in the recent tech sell-off and has been involved in countless controversies which have resulted in the stock falling to just over $600. Now that Volkswagen has committed to the EV market in a significant way, it looks relatively undervalued with its market cap being almost 4.6x less than Tesla.
While it has not really scaled up its operations to date, it certainly has the capacity to do so, with the Volkswagen Group selling over nine million cars in 2020. This compares to just half a million sales for Tesla. It has also been making numerous acquisitions to aid its EV efforts, focusing on self-driving software, charging, and battery technology. Europe is a major EV market, with Volkswagen already having a significant foothold in the region. Many governments now offer major incentives to EV buyers.
Recently, Schmidt Automotive Research released data that showed Volkswagen more than doubled Tesla’s EV sales in Europe, growing to 856,000 from May 2020 to April 2021.
In its most recent earnings call, Volkswagen stated:
“We managed the effects of Covid-19 and the semiconductor shortages responsibly, continued to invest in the electrification and digitalization of our vehicles, and simultaneously worked on our cost base.”
It also plans to invest EUR15 billion ($17.6 billion) in its China EV infrastructure in the next four years, with sales in the nation being strong to date. Finally, the Volkswagen Group owns a number of strong brands, including Audi and Porsche. These brands will aid the EV rollout, as well as continuing to generate revenues in the non-EV side of the business.
The bear case for Volkswagen
Volkswagen is a tried and tested manufacturer, but the EV sector is a different ball game. A lot depends on building costly infrastructure across many regions before EVs can become commonplace.
Volkswagen appears to be positioning itself as an EV-focused company, which has the potential to backfire. With its plan to invest huge sums in the coming years, any hiccups along the way could derail the company’s share price.
Finally, the company’s 2015 diesel emissions scandal is still fresh in the minds of many people after it was found that Volkswagen had rigged millions of its diesel cars to cheat emission tests. When this scandal went public, nearly 40% was sliced off the share price. Some investors will be wary about trusting a company that was involved in such a recent major scandal.
So, should I buy Volkswagen stock?
There is a lot to like about Volkswagen going forward as its lofty goals have been backed up by strong sales last year. The German-based company is well-positioned to become the major player in the European EV market as its brands are already extremely popular there. Its success in China to date is also very promising.
Quickfire round
Who is the CEO of Volkswagen?
Herbert Diess has been the CEO of Volkswagen since 2018.
What are some of the Volkswagen Group brands?
Porsche, Lamborghini, Bugatti, Bentley, SKODA, SEAT, Audi, and Volkswagen are among the brands.
How profitable is Volkswagen?
Operating profit for Q1 came in at EUR4.8 billion ($5.8 billion) despite the pandemic and impact from semiconductor shortages.
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