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VW Shares Take On Tesla-like Quality

VW Shares Take On Tesla-like Quality.

“If VW can follow its ambitious roadmap for e-mobility and leverage the scale economies it is targeting, it will certainly be a credible rival for current market leader Tesla”

Volkswagen shareholders were almost Tesla-like as in mid-March they rushed to embrace its ambitious plans and drove the stock price almost 16% higher Tuesday after news VW would to ramp up battery production and commit to the electric revolution.

VW wants to build six battery factories in Europe by 2030.

“E-mobility has become core business for us. We are now systematically integrating additional stages in the value chain,” VW Group CEO Herbert Diess said during a presentation Monday.

VW also confirmed Tuesday its operating profit target for 2025 was 7% to 8% and that it would probably earn between 5% and 6% in 2021.

Earlier this month Volkswagen said 70% of sedan and SUV sales from its namesake VW brand in Europe will be battery electric by 2030. A missing part of the plan had been just how would VW find the batteries to put in all these cars.

Investors piled into VW’s shares and analysts were excited by VW’s plans.

Reuters Breaking Views columnist Christopher Thompson pointed out VW tripled electric car sales to 422,000 in 2020 and will boost that to 1 million in 2021, with a 3 million target by 2025. Thompson speculated VW could maybe spinoff its Porsche sports-car brand, and the battery-car subsidiary, and perhaps even its new software business.

David Leggett, automotive analyst at GlobalData, pointed out there were difficult decisions ahead as VW managed software, hardware and engineering to deliver improved performance at much lower cost.

“Much hinges on VW’s new unified battery cell and six yet to be built cell-making ‘gigafactories’ in Europe that VW believes can reduce the cost of its battery cells by up to 50% by 2030.  If VW can follow its ambitious roadmap for e-mobility and leverage the scale economies it is targeting, it will certainly be competitive in the rapidly growing global electric car market and a credible rival for current market leader Tesla,” Leggett said.

Leggett pointed out that although it did appear VW was going hell for leather for all things electric, it hadn’t yet decided like some to dump its internal combustion engine (ICE) capability.  

“As well as its industrial scale, VW also has the advantage of continuing to sell combustion engine cars – at higher margins than is possible with electric cars – in markets around the world to help finance the shift to electric over the next ten years. Unlike some other carmakers, VW has notably not set a date for going ‘all electric’,” Leggett said.

After Volkswagen doubled its plans for its VW brand, saying by 2030, 70% of its total European vehicle sales will be battery electric, investment bank UBS predicted the end of the ICE age, saying that global new cars would be 20% (minus a few plug-in hybrids) electric in 2025 and 50% by 2030 (4% plug-in hybrids). “100% by 2040?” it said.

That’s a massive increase compared with the expectations of leading data provider IHS Markit, which says only 18.1% of the world’s car sales will be battery electric (BEV) in 2030, up from 12.1% in 2025. For the European Union (EU), IHS Markit reckons BEV sales will hit 19.1% in 2025, and 30% in 2030, so the idea that 70% of VW’s sales could be all electric would be a massive change from the conventional wisdom. Most mainstream forecasters are much closer to IHS Markit than VW or UBS, and for their optimistic predictions to become reality some massive hurdles have to be jumped.

And Breaking Views Thompson added a note of caution to his speculadtin about various VW spinoffs, remaining investors of the weird ownership of VW, in which local p9oliticians and trade unionists have veto over strategic decision.

By early afternoon in Europe VW shares were €284.00, up 18.8%.


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