With the legacy automaker and current EV champion vying for market leadership in Europe, which is the better investment right now?
Volkswagen (OTCMKTS: VWAPY) is coming after Tesla (NASDAQ: TSLA) with all guns blazing, selling more vehicles in Europe in Q4 2020, launching new factories, and investing in battery innovation. Tesla, with its massive ongoing data mining, is in a prime position to optimize its autonomous vehicle (AV) tech and further expand its insurance offering. Should you invest in Tesla or Volkswagen today?
Bull and bear case for Tesla
Tesla might have missed its goal of selling half a million vehicles in 2020 by a whisper, but it will certainly meet and exceed that number this year. In Q1, it sold nearly 183,000 vehicles and the company is predicting an annual growth of 50% in vehicle deliveries,expecting to sell 5 million vehicles annually by 2030. With a 17% global market share and an expected EV penetration of 40%, it’s not unreasonable to assume Tesla will meet this objective and earn $175 billion in revenue from auto sales alone.
Tesla also sells solar panels, battery storage, and will soon offer software packages for its AV offerings. Additionally, the company, with its extensive data on driver’s habits, has started offering insurance and is projected to make $250 billion annually on insurance alone by 2030. Tesla is doing all this while working on producing a cheaper vehicle and extending battery range. It is also building factories in Berlin, Austin, and another in Shanghai and will be launching its highly anticipated Cybertruck by the end of this year.
The bad news is that Tesla is not yet profitable from vehicle sales alone; rather, it is making more and more from Zero Emission Vehicle (ZEV) credits that it sells to non-EV car manufacturers. The more vehicles Tesla produces, the more credits it has to sell and that’s why credit sales have been increasing by an average of 85% year-over-year (YoY) since 2012, reaching its highest ever sum of nearly $1.6 billion last year. As legacy auto makers start pivoting towards EV, these sales will start to dwindle for Tesla and pivot they will.
Volkswagen, for example, is planning on having 70 EV models for sale by 2030 and as one of the world’s largest automakers, it can deliver on that ambition. Let us also not forget about new upstarts like Lucid Motors and NIO potentially taking market share from Tesla. And finally, there’s Tesla’s Technoking, Elon Musk, whom some investors are beginning to grow tired of due to his exaggerated claims and controversial Twitter rhetoric.
Bull and bear case for Volkswagen
The European Union is striving towards carbon-neutrality by 2050 and Volkswagen is the company that is helping it get there. Already, the company has overtaken Tesla as EV market leader in Europe, with a 24% market share, compared to Tesla’s 13%. Its future plans are also quite ambitious and include six battery cell factories by 2030, 18,000 charging stations in Europe, 3,500 in the U.S. and 17,000 in China by 2025.
Unlike Tesla, Volkswagen is one of the largest auto manufacturers in the world and can scale its factories to switch from combustion engines to battery-powered and thus produce more output. Its ID.3 model is cheaper than Tesla’s Model 3 and was launched only in July of last year but quickly overtook sales from the legacy EV company.
The one area the company trails Tesla in is software, which Volkswagen will remedy with a $19 billion investment over the next five years. Tesla might have insurance as an additional revenue stream but Volkswagen has its Modularer E-Antriebs-Baukasten (MEB) platform, an efficient, flexible EV stage capable of scaling battery space. Already licensed to Ford, analysts are estimating that this tech will be worth $25 billion by 2028 in licensing agreements.
The same slew of competitors that Tesla is up against also pose a challenge to Volkswagen. Aside from this point against the company, the only other blemish faced by Volkswagen is from the ‘Dieselgate’ scandal of 2015, wherein the company intentionally programmed their vehicles to circumvent emissions standards. This might keep nervous investors away.
So, which is the better investment right now?
Tesla sells slick looking cars with a highly advanced and intuitive software interface. The company’s popularity can be compared to Apple’s and Coke’s as it has firmly established itself in the cultural zeitgeist. Having said that, I feel the company is grossly overvalued. Volkswagen is the better investment as it’s firing on all cylinders in the EV war and offers a stock price that is roughly 20 times less expensive.
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