ANALYSIS-Electrical shock: German auto stocks are awakening to new life

B.y Danilo Masoni and Thyagaraju Adinarayan

LONDON, March 22nd (Reuters)Volkswagen VOWG_p.DE and BMWs BMWG.DE Plans to capture market share in the fast-growing electric car market and challenge Tesla could shift the dial for their cheap stocks.

A deadline set by many countries to become CO2-free by 2050 has led to increasing acceptance of zero-emission vehicles and Tesla TSLA.O was at the forefront of this transformation, selling long range battery electric vehicles (BEVs).

Despite a recent pull-out, the stock is up 650% over the past year, which was also backed by a cult following for CEO Elon Musk.

But it’s no longer the only electrification game in town.

Volkswagen, the German company that competes with Toyota for the world’s largest vehicle seller in terms of volume, presented its ambitious plan last Monday to convert 70% of European sales of its core VW brand to electric.

The month-long plan helped fuel a Tesla-esque rally in the company’s 83-year-old stocks, with CEO Herbert Diess even going to Twitter to crow Elon Musk-style when the company’s market value topped $ 100 billion ($ 119) Billion US dollars) earlier this month.

The share has risen 52% over the year to date and has a market value of 143 billion euros.

“Since the VW boss is really driving the message of BEVs on all channels (conventional media, investors as well as Twitter and LinkedIn), we believe that private investors could pick up on this story and be a pretty strong force themselves,” said Barclays analyst Kai Alexander Muller.

German rival BMW said on Wednesday that it plans to achieve half of its sales with fossil-free vehicles by 2030 and that around 90% of its market categories will have fully electric models available by 2023.


“Nobody can know today who will win in the global electric car market, but while the players are balanced, there is an unprecedented imbalance in stock market valuations between early adopters and those who will,” said Alessandro Fugnoli, a strategist at Kairos in Milan and called it “the rebirth of the German car”.

UBS recently forecast that Volkswagen would reach Tesla production by 2025 and raised its price target on the company’s stock by 50% to $ 300 – the most bullish target among the 28 analysts covering the stock. The share is currently around 223 euros.

Assessment comparisons are also helpful.

Tesla is by far the most expensive stock in the automotive sector at 160 times forward earnings, while Volkswagen and BMW are still only trading at 9 to 10 times forward earnings.

“European automakers are well positioned in terms of size and balance sheet to reposition themselves for electrification and they have strong distribution platforms,” ​​said Sunil Krishnan, head of multi-asset funds at Aviva Investors.

In addition, according to a source, Volkswagen is also considering listing the luxury automobile arm Porsche AG to raise funds for investments in software and electric vehicles.


Despite the recent gains, Volkswagen’s market value is still only about a quarter of Tesla’s, and several analysts see further room for profit in both the German group and the entire European automotive industry.

“Left in the lurch by everyone and especially by investors, the German auto industry, after having eaten a lot of dust and fallen into a dilapidated state, understands that sticking to the electrical system must be absolute,” said Fugnoli.

The electrification offensive not only boosts German auto stocks, it also helps boost broader European stock markets, which have long lagged those in the United States.

The German DAX reached new highs in March.

Given the still relatively weak positioning and inflows into European equities, some investors think this may change soon. BofA’s weekly flow data, March 10-17, showed fund managers pulled $ 1 billion from Europe while pumping a record $ 53 billion into US stocks.

Still, few believe that European indices will attract frantic buying of technology stocks on the US Nasdaq in recent years.

“In Europe, it’s going to be a stock-specific theme for a while, we’re not going to look at the Euro50 as a technology index this year,” said Aviva’s Kirshnan.

“But these things can change quickly – see how quickly VW rose in the pecking order of market cap.”

($ 1 = 0.8407 euros)

Market Cap Race: Tesla vs. Top Auto Sellers

(Reporting by Danilo Masoni and Thyagaraju Adinarayan. Additional reporting by Sujata Rao and Abhinav Ramnarayan in London. Editing by Rachel Armstrong and Mark Potter)

(([email protected]; +44 (0) 20 7536 7471; Reuters news: [email protected]; Twitter @thyagu))

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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