investing

Ten reasons why I added Volkswagen ($VOW) to my portfolio

I am trying to write a blog post about every stock I buy to explain why. I already managed to cover Galapagos, Palantir and Beam Therapeutics. but I admit I am a bit behind and have a few more stocks to go, but I did wanted to catch up a bit and write about what made me purchase Volkswagen.

While a deeper analysis always takes a bit longer to write, I always tweet right away on twitter when I make a new purchase.

Volkswagen was on my radar for a long time actually. When the Dieselgate came out the stock dropped so much that I was thinking its undervalued now, but at the time I was still busy investing in funds rather then trusting my own judgement.

Additionally what Volkswagen was missing was a plan for the future. For sure given their profits and size they were undervalued, but they were lacking a vision to keep up with the fast changing world we live in now.

This changed. Now they have the vision. What we saw the last months with Volkswagen is a unique moment where a value stock suddenly becomes a growth stock.

I recently purchased a first position in $VOW 4 shares at 242 EUR, and another 6 at 236 EUR when the stock dropped a bit.

The second purchase was actually the same day as Power day.

Power day was just amazing, it laid out the future Volkswagen has in mind. One thing I can see is that they have a lot in common with certain US companies such as Tesla.

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Ten reasons I decided to buy Volkswagen ($VOW)

#1 Volkswagen is profitable and remains extremely popular in Europe and the rest of the world

Volkswagen is the biggest car company worldwide. While Volkswagen on its own might not sound so luxurious they own a large portfolio of luxury cars. How could you not like Audi or Porsche inthere.

Volkswagen places massive EV bet to master green mobility shift | Clean  Energy Wire

At the same time their main brand Volkswagen really can’t be beat price / quality. This is known in Europe but is also known elsewhere in the world. They are also known for keeping its value.

One of my first cars was a Volkswagen golf. I sold it to a guy who was living in Belgium but who would drive abroad with it to his family to show how much he “made it”. Meaning it really is seen as a luxury brand outside Europe and inside Europe as great price / quality.

I also drove a Seat for two years (company car), and I really enjoyed it.

I also have a weak side for their brand Audi. I could really see myself driving an Audi someday. I love the cars but I also think they are ahead on technology on certain levels. But I will come back to that later

#2 They might IPO Porsche

The Volkswagen CEO Herbert Dries has realized that one of the reasons Tesla was attracting so much money is because its simply much more sexy to say you own Tesla stocks then Volkswagen stocks.

This is one of the reasons Volkswagen is considering to IPO Porsche. They could pick up extra cash this way. This cash could be used to pay for their transfer to EVs.

918 Spyder

The fun part? If you own Volkswagen stocks you will get Porsche stocks when they IPO. So investing in Volkswagen could be a great way to get Porsche stock at IPO price.

Its not sure when or if Porsche will see an IPO, but it is rumored to be planned for 2022.

#3 EV plans

Norway already banned Petrol cars. By 2030 UK, Ireland, Netherlands and Denmark will follow. California will be the first state in the US to ban petrol cars by 2035. Its unlikely to see many countries still allowing Petrol cars by 2040 in EU.

China is facing huge pollution issues in their large cities and will ban Petrol cars from 2035.

I suspect to see a large amount of developed and emerging markets to follow quickly. Especially markets who have access to Lithium but not to Petrol. After all its not only because of the environment, its also because of resource independence.

EU already secured its Lithium. As it turns out it found huge deposits in Germany, and plan to mine 80% of the lithium in Europe itself. Furthermore they are planning construction of battery factories in Bolivia, which is sitting on the biggest Lithium supply worldwide.

So there is more then enough Lithium to go around to facilitate the transition to clean energy.

2035 is not far away. Moving to EV will take many years of research. All companies are starting to invest, but frankly this is a now or never situation. Companies that fail to make the switch will see entire markets close down.

Petrol is not going away, I imagine the middle east countries with huge oil supplies and no lithium will not be eager to make the switch. However I do see the large majority of the developed world, and a large part of the emerging markets switching the next 15 years.

I now drive a petrol car, but I absolutely see myself moving to EV by 2025 and this could be a car from the Volkswagen family.

In the case of Volkswagen, they announced in 2018 they would be investing 44 Billion EUR in EV technology. Just in time to make the jump.

#4 Battery Production

Believe it or not but I had already bought my first Volkswagen stocks before Power Day. Power Day reminds us a lot to Tesla’s Battery day and was used to explain how Volkswagen would make sure their EV business is a success.

One thing they touched on Power Day is of course the production. As mentioned before the fact that the EU and Volkswagen have managed to secure the supply line to produce EVs is a major gamechanger. So far the EU has always been dependent of other countries for their energy supply. Any country that has Lithium but no Oil should be welcoming EVs.

Volkswagen also plans to produce their own battery’s. Right now they are buying it at various different locations, but producing this fully themselves by 2025 will be a big cost cutter. Production of their own cells is planned to start by 2023 and will be scaled up further the next years by adding more factories.

By doing this they expect a cost cutting on the batteries by 30-50%. And the battery is exactly what makes EVs so expensive. This will really bring EVs to all consumers.

Additionally they plan to further research into charging battery’s faster and making them last longer for increased distance.

#5 Fast charging network

Governments are running behind on investing in a fast charging network. Existing Petrol companies have little interest to do so. Tesla understood this early on and created an exclusive Fast Charging Network for Tesla owners.

Volkswagen understood that extra fast charging points was needed to bring EVs to market, but rolling out their own network would also give additional incentives to car owners to buy Volkswagen cars.

Together with its partners Volkswagen plans to roll out 18.000 fast charging points across Europe. This is HUGE! It is actually about 1/3rd of the expected total amount needed. The fast chargers would have a charging capacity of 150 KWH. Another amazing number there. There is very few of this size currently in Belgium right now.

Additionally to the charging points in Europe Volkswagen also plans to implement 3500 charging points in US (my guess is the focus will be on California) and 17000 in China!

This would bring Volkswagens number much higher then what Tesla has Worldwide and exponentially higher in Europe. In 2021 Tesla currently has 3200 charging points in Europe.

#6 Your car will be more then just a car

This was the closure of power day, and I actually thought this was the most interesting one! Volkswagen intends to integrate the electric car in private, commercial and public energy systems in the future. This will allow anyone to produce green energy from Solar Panels during peak ours, store it in their Volkswagen car and use it in the evening when the sun goes down.

No need anymore to buy both an expensive EV car and an additional battery, as now they come all in one.

#7 Self driving cars

In 2016 everyone thought that by 2022 the roads would be swarming with autonomous level 5 cars. Now it seems 2030 is the new 2022. But it can’t harm to see where the tech is and what companies are ahead.

When you would ask in the US what cars are ahead most would probably say Tesla. Actually Tesla has not reached level 3 yet. At the time of writing there is not a single level 3 car driving in Europe or US.

In Japan however very recently Honda was approved as the first level 3 car.

In Europe the first level 3 car was the Audi A8 with Traffic Jam Pilot. This was designed to automatically steer, brake and accelerate in traffic. Audi developed this system in 2018 but EU legislation is not ready to allow level 3 cars.

What about the US? Also there the level 3 options from the Audi A8 are not activated. As it turns out the legislation is even more challenging in the US as every state has their own. This makes it, as of right now, impossible to roll this out for any car company. Even though the US is being used as a huge testing ground for self driving cars the actual approval is lacking behind.

So Elon Musk can say that Tesla will reach level 5 by the end of the year (a statement he regularly makes), it seems at this point getting it approved will be harder then getting it developed.

What is the difference between level 2 and level 3 anyway? At level 2 you see features like dynamic cruise control, which allows the car to break and accelerate automatically depending of the maximum speed you set and the car in front of him.

At level 3 the car can drive by itself in traffic or on the highway for example. From a driver’s perspective the jump from level 2 to level 3 is not so big, however from a technology perspective level 2 to level 3 is a much bigger jump them level 3 to level 4!

Right now I can’t predict when we will be seeing self driving cars in Europe, I can be wrong but I don’t see it happening before 2030 right now.

#8 Volkswagen Move

This one so far has been a bit under the weather so far. But one thing Volkswagen is trying to launch is their own ride hailing app / service called Volkswagen Move. You can almost call it their own Uber / Lyft app.

I think this is a great investment for Volkswagen. Should self driving REALLY hit the market then it is almost certain that we will need less cars and car sharing will become more common. At this point car companies either need to partner up with ride hailing apps like Lyft and Uber, or they need to launch their own.

From that perspective it makes total sense for Volkswagen to start such an App and try to get some market share. The only thing I wonder is if they can take much market share of the consumer market if they limit themselves to one type of car.

If Volkswagen plays their cards right Volkswagen Move could become a huge source of revenue for them, especially if they manage to combine it with autonomous cars.

#9 Volkswagens EV cars

Something I really like about Volkswagen is how they are going for SUV cars in their EV cars. Tesla has their very popular Model 3 car in the US, but they don’t really have a competitor for the SUV market right now.

They do have the cybertruck, which is not very safe and therefore not approved in Europe right now, so this is a piece of the market that is still up for grabs.

Volkswagen ID4

My preference personally goes out to the Audi E-tron, or a bit more budget friendly: the Volkswagen ID4. But Volkswagen will need to follow trough on cutting costs on those battery’s because right now they are missing a car for the middle class.

Audi E-tron

I personally love driving an SUV and its very hard to go back to a regular car once you are used to SUVs. In that perspective I think it was very clever of Volkswagen to make their first serious EVs SUVs.

#10 Market Potential and valuation: Tesla vs Volkswagen

Well firstly I absolutely love Tesla and especially love Elon Musk! I think some of the things Elon Musk is doing for the world, really are making a difference. Their Model 3 car is the best selling car in the US right now, which shows that they have truly met the potential there. I also think if you have Tesla in your portfolio you should hold on to it, its a great stock to have. But this is not about Tesla but about Volkswagen.

Tesla now values at about 628 Billion USD while Volkswagen is only at 147 Billion EUR. This while the sales of Volkswagen are exponentially higher. If you look where the main growth markets are for the future: EU and China I think Tesla will have a tough time to beat some of the plans Volkswagen has, such as the roll out of 18.000 charging points in Europe and 17.000 in China. With exponential growth of EVs having access to charging points could be really be a dealbreaker for car owners. Volkswagen is clearly making sure their car owners will have access to that market.

When looking at profits Tesla has a profit of 700 Mil, while Volkswagen records a profit of 12 Billion! 17 times higher then Tesla. If Teslas valuation was a fair valuation based on price, Volkswagen could be valued 2500 Billion. Of course Teslas valuation is completely focused on growth, but it does show that Volkswagen still has a lot of potential.

China recently decided to ban Teslas near military zones because of their cameras that might record Chinese military bases. This is not a “quick fix” for Tesla as the cameras are build into the cars. I do think Tesla will adapt but it does hurt their brand in China, and this is not a market you want to lose right now.

That being said Volkswagen could run into similar issues when trying to take the market in China, but it must be said that because of the tradewar between US and China Tesla is running a slightly bigger risk there.

I really believe Volkswagen is a major competitor of Tesla and could even outplay Tesla by 2025. In the short run, I can see Volkswagen stock go to 420 EUR in the next 12 months. So an almost 100% upside.

Should you buy Volkswagen ($VOW)?

Since I am not a financial advisor I’m afraid I can’t answer this question for you. Investing always carries risks. In my opinion its much more risky not to invest in anything. Volkswagen is one of those unique stocks that is both a value stock and a growth stock at the same time. From that perspective its one of the less risky stocks in my growth portfolio right now.

I wanted to invest in a car company and after much research, looking in both financials of companies and its visions for the future, and decided Volkswagen was the right pick for me. Not only do they have a large growth potential in the EV market, they are also opening so far untapped markets such as EV charging points and the Ride Hailing market. That’s why I bought 10 shares at an average price of 238,52 EUR.

Volkswagen is far ahead in revenue and profit to Tesla, and I do believe with their new CEO Herbert Dries they have the right vision right now to catch up quickly to Tesla in Tech where they are behind right now, and even outpace Tesla in some areas. I also feel there is still a lot of growth potential with plenty of Technology breakthrough’s to come and the possible Porsche IPO next year that will give VOW stockholders their very own Porsche share.

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3 thoughts on “Ten reasons why I added Volkswagen ($VOW) to my portfolio

  1. Hi, just found your blog and found your insights really interesting.
    I believe the traditional car makers do have growth opportunity and have recently (too late) been watching Volkswagen. You bought the Preferred stock rather than the Common, any reason for that?
    By the way another one I’m following is Ford, still undervalued with electrification on the way.

    Liked by 1 person

    1. Hi Richard,
      VOW has voting rights where VOW3 has not, this is why Hedgefunds in general prefer VOW, even though in dividends its about the same. It means VOW has more chance to go up more but also more chance to drop: more volatile in general which would be positive in a rising market.
      Yes Ford is one to watch as well, I think its last card has not been played yet in the US market and there is plenty of potential to rebound if it can get a stake in the upcoming EV market that Biden will be creating.

      Like

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