VOLKSWAGEN: BIG AUTO RECOVERY - PART 2?

 

15th November 2021

 

Share Price: €284.60

 

Dividend Yield: 1.7%

 

P/E Ratio: 8 times

 

Volkswagen shares look somewhat less attractive than Daimler, on a review of the fundamentals.

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Firstly, its sales fell by 18% in China for the first 10 months of this year, whereas Daimler is experiencing continued growth. The discontinuation of its once popular Santana model was largely responsible for the decline, and Volkswagen hopes to recover this lost momentum by transitioning to SUVs and of course electric vehicles.(EVs).

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Volkswagen is in the mass market sector, whereas Daimler is in the luxury sector. Volkswagen therefore is competing more directly with Tesla, and the latter can assemble a vehicle in 10 hours, whereas Volkswagen's CEO said its Chinese plant can take more than 30 hours to do likewise.

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Volkswagen has a powerful works council, with labour representatives holding half of the 20 seats on the supervisory board which approves all key decisions. This limits its ability to cut costs and adapt quickly to changing market conditions. Volkswagen's CEO, Herbert Diess, has a frail relationship with the works council, per media reports, and his future could be uncertain as a result.

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On the upside, there is a distinct possibility that Volkswagen will spin off its Porsche business, per a recent report in the German media. This would be likely to boost the shares, as the latter is a luxury brand that should be more resilient in the face of the many challenges the car industry faces at this time.

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The shares are surprisingly illiquid for such a large company. This is due to the fact that a very small number of shareholders control a large portion of the stock. The Porsche company, which is 50% owned by the Porsche and Piech families, holds 31.4% of the stock. The state of Qatar holds 14.6% and the regional state of Lower Saxony holds 11.8%.

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This can sometimes cause some erratic movements in Volkswagen's share price, as in the infamous short squeeze of 2008, for example. Therefore the chart signals may be less reliable, and Daimler (soon to be renamed Mercedes - Benz) is preferred for this and the other reasons outlined above.