Volkswagen, from Barrons

Investment Analysis Clubs Macro Economic Trends and Risks
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Quote from this weeks Barron’s (sorry, no link)

'It is VW's valuation that deserves a closer look. Even with Friday's gains, VW shares are trading for about 3.7 times estimated 2023 earnings. VW shares are actually cheaper than that: In one way, they are practically free.

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VW owns roughly 75% of Porsche AG (P911.Germany), the maker of the Porsche sports car. That stake is worth $83 billion, while VW’s entire market capitalization is about $80 billion.

Excluding Porsche earnings, VW generated about $16 billion in operating profit last year. That’s more than the $14.5 billion operating profit General Motors (GM) earned in 2022, and GM has a market cap of about $56 billion.’

I’ve never owned an automaker; too big, too much capital, too cyclical. But then cycles have ups too, so….

Comments?

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Mercedes looks like a fantastic buy right now as well. The yield is some 7%.

The main consideration as Germany heads to supply side econ will this cycle give Germany a chance at the auto industry industrial policy regardless of a capital policy.

The US/Mexico will lead in automotive production. Can Germany and Japan maintain an excellent foothold?

Looking at Mercedes the company currently rivals Tesla for unit margins. This is critical.

I have not looked at Toyota as the company reinvents itself.

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I would stay away from VAG right now.

-they are heavily exposed to China. Beside the geopolitical risk, their Chinese market share has been falling as domestic producers have learned how to make decent products.

-VW brand market share has been falling in the EU. Audi brand market share has also fallen off it’s peak of ten years ago.

-VW’s crop of new SUVs rang up robust sales in the US, for a couple years, but sales are now falling.

-US market product quality and reliability has fallen off sharply over the last ten years. Ten years ago, CR’s reliability data showed some VW models to be sound enough to be recommended. My 2014 VW has been excellent. In the bad old days of the 1990s, VWs were troublesome, but, when they were right, they drove well. Now, they don’t even drive well when they are working as designed, and are deluged with electronic and powertrain faults.

-I had hopes that the TDI scandal would cause enough belt-tightening in Wolfsburg to force the company to clean out the redundant and halo brands that linger from Ferdinand Piëch’s " empire building" in the 90s, but no, they have not. Some years ago, I saw Sergio Marchionne comment that Bugatti is “the biggest waste of capital I have ever seen”, yet the bleeding continues. VAG buries the costs of these halo brands, rather than reporting them separately, as they do with the operations that make money.

As far as I am concerned, Martin Winterkorn presided over peak VW. His resignation due to the TDI scandal, seems to have handed the company over to “professional management”, exploiting the brand by offering poorly executed products at premium prices.

Herbert Diess presided over most of the fall from the peak Winterkorn took the company too. He was fired last year.

Will we see a renaissance at VAG, or continued MBA nonsense? Considering VAG is dropping a pile of money to try and leverage the old Scout name for a new line of EV SUVs, I don’t see renaissance, but more MBA nonsense, trying to leverage a largely forgotten brand, to try and gouge customers the way Jeep does.

Steve

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3.7X is absurdly low. The “market” must have low confidence in those 2023 numbers, or maybe waiting for a quarter or two to show that those numbers are indeed possible. Or maybe they expect a recession of sorts around the world that will depress auto sales?

I too have never owned an automaker for any length of time, specifically due to the capital intensive, and cyclical, nature of the business. But, in the mid-80s, I used to trade Ford stock for a point or two every few weeks … through October 1987 at which point I stopped doing that.

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At one point, I had a small position in Ford, in the hope they would can Jim Hackett in their upcoming quarterly report. They didn’t fire him then, so I sold.

In the late 90s, I held some Honda, because they offered well built and reliable products. iirc, I did OK with it.

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Musk and Tesla will have the same problem not just VAG.

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Or is Mobius talking his book in touting India? He doesn’t think the instability in Pakistan is a problem?

Steve

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China has instituted tight money controls.

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Back then I was a total investing idiot. I had no “positions” at all. I didn’t even fund my 401k or IRA (when they came into being). I traded periodically, for example, bought F at $48, sold at $50 a week or three later. The only long-term positions I had were money market funds, some CDs, and some nice 8% and 8.5% CMOs that I purchased in the 80s but didn’t last long as rates went down.