Analysis: How VW Could Outperform Tesla

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This article first appeared on Morningstar Australia and was written by Anabelle Dickson

As automakers step up efforts to transition to battery-electric vehicles (EVs), Volkswagen (VW) is set to clash with the market’s largest automaker, Tesla.

But Morningstar’s senior auto analyst Richard Hilbert believes that if Volkswagen meets its electric vehicle sales targets, the company could overtake Tesla in 2025 and lead the peloton of automakers making the transition.

“By 2030, VW leads the group with around six million electric vehicle units and holds the group’s highest share with 18%. The automaker is one of the largest automakers in the world by volume, ”he said in a new Morningstar report on electric vehicle transition efforts at Daimler, BMW and Nissan, among others.

“Tesla is just behind Volkswagen with around 5.4 million units and 16% of the group’s total electric vehicle volume.”

Morningstar forecasts an annual growth of 49% per year in the volume of global sales of Volkswagen electric vehicles (VOW) from 2019 to 2030 through its brands Audi, Porsche, Bentley, Volkswagen, Lamborghini and Bugatti.

This is a big increase from the latest figures which show that Volkswagen has around 232,000 electric vehicles on the road. Tesla (TSLA) has 500,000, but not all automakers have made the same level of progress.

Internal combustion engines are on the way out as emission standards rise across Europe and China. Electric vehicles are expected to reach 30% of global market demand by 2030, according to Morningstar estimates.

The transition to a pure EV offering has been slow for some automakers as they face high development spending and the end of manufacturing vehicles with internal combustion engines.

Over the past year, Renault (RNO), for example, has doubled its electric vehicle units to 122,000 and is targeting electric vehicles at 90% of the total sales volume of Renault brand passenger vehicles in Europe. ‘by 2030.

On the other hand, Ferrari (RACE) is focusing more on hybrid vehicles and has announced the launch of a fully electric car in 2025. No-moat VW has set a target for its electric vehicles to reach 20% of the volume of vehicles. global sales by 2025. and 50% by 2030, with 50 models available to consumers. These include the Audi Q4 e-tron, the Porsche Taycan and the Volkswagen ID. 4.

Volkswagen’s preferred share class trades at a 52% discount to Morningstar’s fair value estimate of 340 euros. The Ordinary share class trades at a discount of 25% compared to the same estimate.
The difference between the two share classes is the absence of voting rights and the preference of 0.06 EUR in earnings per share and dividends per share each year for the Preferred.

No investment opportunity in the deployment of EVs

Within the automotive group, Hilbert says the transition to electric vehicles does not in itself represent an investment opportunity. However, he believes that some mass-market automakers are attractively valued due to market concerns over the shortage of microchips, the lower contribution margin from electric vehicles, and growing competition from start-up rebate valuations. ups of electric vehicles.

“In our view, automakers are simply replacing internal combustion engine (ICE) vehicle volume with BEV volume, resulting in limited additional benefits for battery-electric vehicles alone,” he says.

“However, we believe mass-market automakers could benefit from a temporary period of higher margin, perhaps around the middle of the decade, once electric vehicle production reaches critical volume, due to less complicated to manufacture on far fewer powertrain parts. “

Nissan (7201) had 70,000 in circulation and electric vehicles are expected to account for 41% of sales volume by 2030.

The Japanese automaker has forecast more than one million electrified sales in 2023. By 2030, it would have all of its new electrified vehicle offerings in Japan, China, the United States and Europe.

Nissan was an early player in the mass electric vehicle market with the launch of the Leaf in 2010 and the e-NV200 utility van in 2014. However, launches have slowed since. The company plans to launch eight models of electric vehicles in 2023.

“The company remains in recovery mode after years of neglecting the development of new models and pursuing volumes and market share,” said Hilbert.

Nissan stocks are trading at a steep 60% discount to Morningstar’s fair value estimate of JPY 1,500 at five stars.

Meanwhile, Narrow-moat BMW (BMW), which makes BMW, Mini, and Rolls-Royce, is Morningstar’s top pick. The fair value estimate of 135 EUR represents a potential increase of 57% compared to the current market price.

BMW plans to launch 13 electric vehicle models for 90% of its market segments by the end of 2023, increasing to 100% by 2030.

“In our opinion, 4-star stocks have been over-priced by the market and are attractively priced,” said Hilbert.

Morningstar’s narrow ditch rating is based on a gulf source of intangible assets, including brand and intellectual property.

Since 2002, BMW’s average returns have exceeded its cost of capital by 7.6%, which Morningstar says is an outstanding performance for an automaker.

Tesla, which was not included in the report because it is not in the process of switching to electric vehicles, remains overvalued by Morningstar, trading around 45% above the fair value estimate of 680 USD.

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