DOI: 10.7910/dvn/4ihixj
title: Volkswagen - Financial data of EV leader

description: Summary
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Volkswagen has been aggressively shifting towards becoming an EV giant.
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Several reasons make Volkswagen well-positioned to gain a leadership position in the EV market. Its success has been evident in European markets with the ID.4 SUV.
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Valuation multiples are one of the lowest in the industry despite a strong outlook.
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Volkswagen ($VWAGY) has been undergoing a transformation from legacy automotive manufacturer to an EV giant. Its first EV SUV, ID.4, has been a strong success in Europe. The company continues to make bold moves in transforming itself and is well-positioned to succeed in the EV market due to multiple reasons discussed further in the article. For now though, here’s a look at the exterior:
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Business Summary
Volkswagen is a leading multi-brand automobile giant. It has two divisions: Automotive and Financial Services. Under the Automotive division, the company develops and produces passenger vehicles, commercial vehicles, trucks, buses, motorcycles as well as software, engines, and other components for vehicles. Passenger car business accounts for nearly 70% of the group’s revenue. The financial services division includes dealer and customer financing, vehicle leasing, fleet management, mobility services, etc. Volkswagen has a broad portfolio of brands across volume, premium, sports, and truck categories. These include Volkswagen, Audi, Skoda, Bentley, Porsche, Seat, MAN, etc. Below is the revenue mix by geography:
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Structural shift in the automotive industry
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The accelerated rise in new technologies, digitization, automation, connectivity needs, and shift towards a greener economy have led to bringing a transformational change in the automotive industry. These have led to shifting the customer preference from internal combustion engine (“ICE”) vehicles to electric, autonomous, and, connected vehicles. While the industry still deals with multiple challenges like lack of EV charging infrastructure and relatively higher cost, these challenges are diminishing rapidly and are expected to be overcome soon which would result in a massive boom for electric vehicles.
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EV30@30 campaign launched by Clean energy ministerial targets EV sales to reach 30% of total vehicle sales by 2030. In absolute terms, the number of units is expected to be roughly 43 million, up from 3.1 million in 2020. As per Canalys, a global technology market analyst firm, the number of EVs sold is expected to reach 30 million in 2028 and represent 50% of all passenger cars by 2030. EV sales were up 39% in 2020 in terms of volume, while at the same time, total passenger car market declined 14% (Source).
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Volkswagen’s transformation underway
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While the overall EV industry growth trends based on above-mentioned estimates are appealing, Volkswagen expects even stronger growth in Europe. It expects EVs to account for more than 70% of total European vehicle sales by 2030. The company seems to go all-in with EV as it announced its plans to introduce the final ICE platform in 2026 with a lifecycle ending by 2040.
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It plans to have six new battery factories by 2030. The company is also the largest automotive investor of QuantumScape (QS), a leading developer of solid-state lithium-metal batteries. Citi (C) expects Volkswagen to be one of the structural winners as the automotive industry transitions into electric powertrains and gave a buy rating to it.
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Even crazier— Volkswagen’s research & development (R&D) budget is the 5th largest in the world; they spend more on research than Microsoft, Apple, and Oracle.
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The company aims to become the global leader by 2025. It plans to sell 1 million electric or hybrid vehicles this year and aims to launch 70 EV models and produce 25 million+ EVs by 2030. Volkswagen has developed a Modular Electric Drive Toolkit (“MEB”) platform which is a scalable modular car platform for EVs. It also plans to launch a different modular car platform (PPE platform) for its premium EV series (Porsche, Audi, etc.) in 2022. Cars already launched on the MEB platform include ID.3 & ID.4. The newly launched first fully electric SUV, ID.4, became the first SUV to top the European BEV rankings in April. Its predecessor, the hatchback ID.3, took the second spot in the European BEV market. This success provides a strong vote of confidence in the company’s competency in the EV market. The aggressive move towards a greener economy with fully electric vehicles would also help to repair the company’s tampered reputation after the diesel scandal in 2015.
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Well-positioned to compete & abundance of resources to support the transformation
Volkswagen is the second-largest carmaker with solid experience in large-scale manufacturing which can be a difficult task for new market entrants like Fisker and Lordstown Motors. The company also enjoys economies of scale and synergies between brands as electric vehicle technology/platform is highly scalable, involving high operating leverage and heavy technological investments. Volkswagen is also expected to benefit from its dominant position in Europe where other EV players have limited penetration. Furthermore, Volkswagen has a huge potential in China, where just 180 out of 1000 people own a car, compared to 840 and 600 in the USA & Europe respectively. 1 in 5 vehicles sold in China is a volkswagen-owned brand, and the market contributes one third to Volkswagen's earnings.
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Besides that, the company has a solid liquidity position and spending capacity. It had €35.9Bn in Cash & Cash equivalents and €69.2Bn in gross liquidity (cash, cash equivalents, securities, loans, and time deposits) as of March 2021. The company also had solid cash flows to support technological investments. It reported €24.9Bn CFO and €13.61Bn FCF in FY2020. The company invested nearly €25Bn in R&D and Capex in FY2020. It aims to invest €46Bn in electric mobility and the hybridization of its fleet in the next five years. Based on Business Insider’s data, the company has been investing the most in EV programs among other top vehicle manufacturers.
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Valuation multiples are still incredibly cheap
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The company trades at very attractive valuation multiples with a forward P/S ratio of 0.37 times and a forward PE ratio of 5.5 times. The valuation is trading at a premium relative to its history due to the ongoing transformation. However, it is still trading at one of the lowest valuation multiples in the industry despite a strong outlook, thus making it highly undervalued.
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We expect the valuation multiples to rise in the future as the company nears the transition to an EV giant and regains growth momentum. However, investors can also earn substantial price returns even if the P/E ratio does not increase because a strong improvement in profitability is expected. The company has undertaken several cost-saving initiatives. It expects a 7% decline in material costs & realize a €2Bn reduction in fixed costs by 2023. It aims to achieve a 7-8% operating margin by 2025.
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Risks to the thesis
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Lack of EV charging infrastructure and unavailability of key raw materials:
All EV market growth projections could be grounded into dust if the charging infrastructure is not sufficient to make the convenience equal to ICE vehicles for car owners. Additionally, the unavailability of raw materials used to manufacture EVs can lead to disrupting the production cycle or even increase the cost of production due to disruption in demand-supply curve of raw materials.

Conclusion
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Volkswagen has been highly ambitious to transform into an EV giant and we believe it is well-positioned to become a leader in Europe and one of the top players in the rest of the world due to its strong experience in mass production, the abundance of resources, scalable platform, advantages of economies of scale, strong synergies between brands, and more. The valuation is still significantly cheap relative to other automotive players despite improved outlook. The stock offers immense upside potential for investors with a long-term investment horizon of 5+ years. The cheap valuation also reduces the downside risk for investors. Most of the research in this article is done using &lt;a href="https://alpharesearch.io/"&gt;AlphaResearch - Edgar Company Search&lt;/a&gt;, the provide state-of-the-art search capabilities for SEC filings such as &lt;a href="https://alpharesearch.io/sec-filings"&gt;SEC filings&lt;/a&gt;,
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&lt;a href="https://alpharesearch.io/sec-filings/10q"&gt;10q&lt;/a&gt;,
&lt;a href="https://alpharesearch.io/sec-filings/form-8k"&gt;form 8k&lt;/a&gt;,
&lt;a href="https://alpharesearch.io/sec-filings/13f-filings"&gt;13f filings&lt;/a&gt;,
and &lt;a href="https://alpharesearch.io/sec-filings/form-4"&gt;sec form 4&lt;/a&gt;.