Volkswagen AG: Herbert Diess sees low capital market valuation as a disadvantage compared to Tesla & Co

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Cassandra from Wolfsburg:

Volkswagen group boss Herbert Diess sees the low stock market valuation of his group as a big problem

Photo: ALBERT GEA / REUTERS

Volkswagen has not yet published its figures for the fourth quarter of 2020.

But it looks like the auto giant itself will close the Corona crisis year with a billion-dollar profit.

From January to September 2020, Volkswagen generated an operating profit of 1.7 billion euros, according to the interim report for the third quarter.

CEO

Herbert Diess

(62) apparently

doesn't think

much of

self-praise for this

at the moment.

After surviving the bizarre power struggle, he sees himself strengthened in his role - and warns clearly of competitive disadvantages for conventional car manufacturers.

"We have not yet proven sufficiently that we can maintain our position in the new competitive environment," said Diess in an interview with the Bloomberg news agency.

"Our market valuation is still in the area of ​​the old auto industry - this leads to serious disadvantages for us when it comes to access to the resources we need."

Further cost reductions at VW and a faster realignment of its group are vital in order to be able to withstand new competitors with superior financial clout, so Diess.

In doing so, he is alluding to his race with the electric car manufacturer Tesla - but also to the risk that Apple, for example, will bring its own vehicle onto the market with its almost unlimited financial resources.

Most recently, the rumors about the "iCar" received new nourishment with a deal in China.

The capital markets' view of the auto industry has "really changed"

"Despite all our efforts, we are currently in an even more difficult situation than in 2018, when I took over the office," said Diess.

"What has really changed - and what I did not expect to this extent - is the view of the capital markets on our industry".

For a long time, Diess has been trying to raise Volkswagen's stock market valuation to a new level.

He wanted to increase the market value of Volkswagen to 200 billion euros, he promised investors in spring 2019. The group is currently worth almost 80 billion euros on the stock exchange - and this value has only changed slightly since Diess announced almost two years ago .

This is one of the reasons why the announcement has become a running gag in the financial scene.

Challenger Tesla has clearly outperformed the Volkswagen Group in its stock market valuation since the beginning of 2020.

Last year, Tesla sold around 500,000 vehicles worldwide.

The German manufacturers are still submitting their annual figures, but are setting a multiple of this: VW delivered 8.3 million vehicles including commercial vehicles from January to November alone.

In normal years, Daimler and BMW each have around 2.5 million cars.

Nevertheless, the capital markets rate Tesla more than seven times that of Volkswagen.

After an almost unprecedented price rally, Tesla's stock market valuation is currently almost 700 billion US dollars (570 billion euros).

The German car companies VW (79 billion euros), Daimler (61 billion euros) and BMW (46 billion euros) come together to around 186 billion euros - Tesla is three times as much on the stock market balance.

The stock market valuation, which is much lower than that of new rivals, makes access to fresh capital more expensive for conventional car manufacturers than for their competitors.

VW wants to convert this into a technology group by means of significantly more added value in the area of ​​software in order to obtain higher valuation approaches on the market.

The VW boss named US tech companies such as Apple, Amazon and Google as role models.

The Volkswagen Group's electric car sales will increase noticeably in 2020

So far it has not really caught on, the conversion from a traditional car manufacturer to a tech company is stalling on many fronts.

A few recent examples illustrate how problematic the low stock market valuation can be on the capital market.

In a single week in December, Tesla and the Chinese electric car startups Nio and XPeng raised $ 9.7 billion by issuing new shares in the capital market.

The five billion dollars in fresh capital that Tesla raised is roughly half of VW's annual net cash flow.

However, some analysts consider the extreme ratings for the new challengers in the auto industry to be exaggerated.

"The ratings and perception of traditional car manufacturers remain far too pessimistic," said the auto analyst Arndt Ellinghorst from Sanford C. Bernstein in a report last week.

Other analysts recommend buying the VW share, also because of Diess' consistent conversion to electric drives.

In the next five years, Volkswagen plans to invest around 90 billion dollars in electromobility - this is the largest investment plan in the automotive industry worldwide.

The sales figures for VW's electric cars are slowly picking up: In the electric car paradise of Norway, the Volkswagen Group recently sold significantly more electric cars than Tesla, for example.

And in Germany, VW's electric car hopefuls ID.3 is slowly working its way up the sales statistics, as our chart on the sales figures for purely battery-powered new cars shows:  

The current conversion is still going too slowly.

He again warned Bloomberg of the bitter consequences if the group with 670,000 employees changes course too timidly and too late.

"Not everyone realizes the threat to our company to the same extent," said Diess.

wed / DPA, Bloomberg