Volkswagen has been getting a lot of attention after unveiling its plans for EV supremacy, but is it 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 price doubling since March 2020 lows. The stock has been taking off in recent weeks after Volkswagen outlined its expansive electric vehicle (EV) plans, 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 a recently released SUV, are now on sale in major markets like the U.S., China, and Europe.
Tesla is the EV company that has been receiving most of the love for the past year, leading to a $900 per share peak. Now that Volkswagen has committed to the EV market in a significant way, it looks relatively undervalued with its market cap being 4.5x 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 last year. 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.
It also plans to invest €15 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.
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, ŠKODA, SEAT, Audi, and Volkswagen are among the brands.
How profitable is Volkswagen?
Operating profit fell to €10 billion ($11.7 billion) in 2020, excluding the costs relating to the diesel emissions scandal. This was a drop from €19.3 billion ($22.6 billion) in 2019, with the difference largely fuelled by the pandemic.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.