Reviving The Scout Brand And Partnering With Rivian Will Expand Market Presence

Key Takeaways

• Partnerships with Chinese tech firms and strategic moves in North America are aimed at boosting global competitiveness and market presence.
  
• Model renewals, cost-cutting in Germany, and focus on electric vehicles aim to enhance sales, revenue growth, and improve net margins.
  
• Volkswagen grapples with weak European demand, competition in China, and costly restructuring, significantly impacting profitability and future financial stability.

Catalysts

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

• Volkswagen aims to cut development times by 30% and reduce costs by 30% through partnerships with Chinese tech companies, enhancing global competitiveness and potentially improving margins.
  
• Volkswagen's extensive model renewal, with more than 30 new models launched in 2024 and continued product offensive into 2025, is expected to drive sales and revenue growth.
  
• Investments and strategic partnerships in the North American region, including reviving the Scout brand and partnerships with Rivian, are targeted at expanding market presence, potentially increasing revenue.
  
• By achieving competitive cost structures in its German operations, reducing labor costs, and enhancing productivity, Volkswagen aims to improve its net margins in the medium term.
  
• Volkswagen’s commitment to increasing its share of battery electric vehicles globally, supported by updated models and expanded charging infrastructure, is poised to boost future revenue and improve earnings.

Volkswagen Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Volkswagen's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.8% today to 5.0% in 3 years time.
• Analysts expect earnings to reach €17.9 billion (and earnings per share of €37.29) by about March 2028, up from €12.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €20.3 billion in earnings, and the most bearish expecting €13.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.3x on those 2028 earnings, down from 4.4x today. This future PE is lower than the current PE for the GB Auto industry at 6.0x.
• 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 9.75%, as per the Simply Wall St company report.

Volkswagen Future Earnings Per Share Growth

Risks

• Volkswagen faces weak demand in Europe, rising trade barriers, fierce price competition in China, and the need for significant future investments, potentially impacting revenue and net margins.
  
• Operating profit fell by 15% to €19.1 billion due to higher fixed costs, including amortization of research and development and restructuring expenses totaling €3 billion, affecting overall earnings.
  
• The financial result was negatively impacted by a decline in profit after tax by 31%, driven by lower equity results from Chinese joint ventures, influencing net liquidity and financial stability.
  
• Incoming orders in the electric vehicle market decreased, and aggressive discounting has become necessary due to increased competition, potentially impacting revenue and market share.
  
• The negative impact from increased fixed costs in the automotive division and ongoing restructuring measures, as well as potential U.S. tariffs and adjustments in CO2 regulation, could negatively influence the company's financial outlook, affecting overall profitability.

Valuation

• The analysts have a consensus price target of €116.533 for Volkswagen based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €180.5, and the most bearish reporting a price target of just €75.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €356.5 billion, earnings will come to €17.9 billion, and it would be trading on a PE ratio of 4.3x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of €108.95, the analyst price target of €116.53 is 6.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.