Accelerating Electrification And Connected Services Will Transform Global Mobility

Key Takeaways

• Rapid growth and local optimization in EV and hybrid markets position Volkswagen for faster-than-expected revenue and margin expansion, especially in Europe and China.
  
• Autonomous mobility, digital services, and asset monetization offer major new high-margin revenue streams, supporting stronger profitability and shareholder returns.
  
• Electric vehicle transition, global trade barriers, China market struggles, operational inefficiencies, and fierce competition threaten Volkswagen's profitability, market share, and long-term earnings stability.

Catalysts

Manufactures and sells automobiles in Germany, other European countries, North America, South America, the Asia-Pacific, and internationally.

• Analysts broadly agree that Volkswagen's BEV and hybrid growth in Europe is a tailwind, but this could be significantly understated as the company's order intake for BEVs jumped 62 percent year over year with nearly a million-vehicle order backlog in Western Europe, suggesting revenue growth and EV margins may inflect faster than the market expects as scale accelerates and CO2 regulation tightens further.
  
• The consensus views China margin improvement as a gradual win, but the pace and scale of Volkswagen's China localization is likely underappreciated; material costs for new EV platforms have already been cut by 40 percent with a further 10 percent reduction targeted, positioning Volkswagen to rapidly reclaim share and drastically improve net margins as its 50+ China-specific models launch through 2030.
  
• Volkswagen's imminent launch of fully autonomous vehicles (with MOIA and ID. Buzz) for Mobility-as-a-Service-already contracted with major partners and aiming for driverless operations by 2027-positions the group to become a first real-scale contender in autonomous ride-hailing in both Europe and the U.S., unlocking large high-margin recurring revenues beyond traditional car sales.
  
• The digital transformation is set to deliver outsized gains: software platform licensing (CARIAD) already grew revenues by over 30 percent and, as Volkswagen pivots to 'car as a connected digital product', its ability to monetize in-car services and subscriptions is likely to be a major recurring EBITDA uplift over the next decade.
  
• The potential for further value unlocking through asset monetization of luxury/performance brands, coupled with aggressive cost restructuring and a sharper capital allocation policy, could drive a step-change in return on equity and potentially support substantial share buybacks, directly enhancing earnings per share.

Volkswagen Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Volkswagen compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Volkswagen's revenue will grow by 3.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.6% today to 5.5% in 3 years time.
• The bullish analysts expect earnings to reach €19.8 billion (and earnings per share of €39.43) by about September 2028, up from €8.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 4.8x on those 2028 earnings, down from 6.0x today. This future PE is lower than the current PE for the GB Auto industry at 8.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.81%, as per the Simply Wall St company report.

Volkswagen Future Earnings Per Share Growth

Risks

• The rapid acceleration of electric vehicle adoption and stricter climate regulations globally threaten Volkswagen's legacy business, creating margin pressures as BEV models, while growing in volume, remain margin dilutive compared to ICE models, resulting in structural risks to long-term net margins and earnings.
  
• Heightened trade tensions and persistently higher U.S. tariffs on European and Mexican imports have already led to significant revenue declines in North America and additional multi-billion euro costs, with the company warning that such tariff burdens may become permanent, negatively affecting both future revenues and operating profit.
  
• Despite reported progress, Volkswagen continues to lag leading EV competitors in China where volumes have declined and competition is fierce, raising the risk of further market share loss in the world's largest EV and automotive market and thus jeopardizing future revenue growth and profitability.
  
• Ongoing execution risk from extensive restructuring, slow cost reduction efforts, and persistent governance and management challenges could limit the effectiveness of turnaround programs and efficiency gains, exposing the company to both restructuring charges in the near term and sustained margin compression over the long term.
  
• Intensifying price pressure in major markets driven by heightened EV competition, adverse product and brand mix, and unfavorable foreign exchange impacts have led to significant declines in operating results and cash flow, indicating ongoing risks to Volkswagen's ability to restore or sustainably grow its net margins and earnings.

Valuation

• The assumed bullish price target for Volkswagen is €144.45, which represents two standard deviations above the consensus price target of €113.75. This valuation is based on what can be assumed as the expectations of Volkswagen's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €146.0, and the most bearish reporting a price target of just €90.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €357.2 billion, earnings will come to €19.8 billion, and it would be trading on a PE ratio of 4.8x, assuming you use a discount rate of 9.8%.
• Given the current share price of €101.4, the bullish analyst price target of €144.45 is 29.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.