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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 4
Revisiting this idea from a couple of months ago, when VOW3 shares were at about 93EU, this fallendes Messer has continued down, hitting a low of 80.58 last week, to a share price last seen 17 years ago. The last bit of the fall may be related to the US election with the potential for new tariffs. I bought a few more shares today at 83.50.
Anyways, at today's closing price of 83.94, the company has a market cap of about EU42b. Here are revenues and net incomes for the last five years:
now TTM (Q3) 2023 2022 2021 2020
revenue (bEU) 324.5 322.3 279.1 250.2 222.9
net income* 12.3 16.0 14.9 14.8 8.3
mkt cap (bEU). 42.1 47.7 56.0 58.4 89.0 76.4
P/E 3.4 3.9 3.5 3.9 6.0 9.2
Current market cap (EU83.94/share): EU42.1b, P/E 3.4
*based on net income to common
So they have had quite good revenue and earnings growth until last year, but this year has been disappointing, with net income down by about a quarter. It doesn't help to have German industry strangled by the loss of cheap Russian gas at about the same time as the last nuclear electricity plants are shut down by the government and there's a recession in Germany and glacial growth in Europe. VW has invested heavily in electric cars whose sales have disappointed. The most recent quarter had only $1.2 in net income, the worst for a long time. If that is the new normal, then this company is not such a great deal: annualize that and you get a P/E of 8.7.
But a lot of this is likely to get fixed. Elections are coming in February, with the new government almost certain to be some kind of right-wing coalition and the Green party in particular (which has insisted on killing nuclear power) particularly out of favour. The war in Ukraine may be almost over (unfortunately, the side I favour is not likely to be able to resist the aggressor much longer) and cheaper gas may be coming quite quickly from North America (as LNG, blocked by the Biden administration.) Cheaper energy and a political course correction in Germany will eventually fix the recession there, which is a big part of VW's market, and more generally in Europe, responsible for almost half their sales. And they will fix the gas-electric product mix eventually.
So at 3x earnings, and a mouthwatering 11% dividend yield in the meantime, this might be a pretty good medium term investment. I should probably buy more.
DTB
No. of Recommendations: 4
Cheaper energy and a political course correction in Germany will eventually fix the recession there, which is a big part of VW's market
My comment as a German, living (mostly) in Germany: This does not account for VW's biggest problem which is linked to this you write:
VW has invested heavily in electric cars whose sales have disappointed.
All German car companies were forced to do that, do fully bet on EV's, because of political pressure. But not only from the current German government. From the EU and their rules and requirements re cars now and especially in the future. Their rules and laws are responsible for phasing out petrol cars - - - and no German government can (or will) change that.
And therein, in the planning the future of the European car industry to be electric, lies (not only) VW's problem: They are WAAAYYY behind their Chinese competitors when it comes to EV's, can't compete with them. This starts with prices and ends with software. And especially the latter is a very specific VW problem or rather a catastrophe. I heard of and know myself so many people driving electric Golf's and complaining about their massive software problems and the reaction of VW dealers when they are approached, who are simply shrugging their shoulders and the official VW reactions which are kind of "That's the state of the technology, you have to accept it". Especially VW in this respect is far behind all others, not only Chinese but also behind their inner-European competitors, especially the French (Renault).
So thanks to the EU (!!!) the European car companies are forced to go all electric, and VW is the least equipped to compete in this area with Chinese or even inner-European competitors (BMW and Mercedes-Benz are having far less problems with their software platforms).
I personally would touch Nestlé - but VW? No way!
I wish you good luck and that you are right and I am wrong.
No. of Recommendations: 2
This starts with prices and ends with software. And especially the latter is a very specific VW problem or rather a catastrophe. I heard of and know myself so many people driving electric Golf's and complaining about their massive software problems and the reaction of VW dealers when they are approached, who are simply shrugging their shoulders and the official VW reactions which are kind of "That's the state of the technology, you have to accept it". Especially VW in this respect is far behind all others, not only Chinese but also behind their inner-European competitors, especially the French (Renault).
So thanks to the EU (!!!) the European car companies are forced to go all electric, and VW is the least equipped to compete in this area with Chinese or even inner-European competitors (BMW and Mercedes-Benz are having far less problems with their software platforms).
Hi Said, thanks for the feedback, that's an important point to which I probably hadn't given enough weight.
Software has been a chronic problem for VW, as I can attest from having owned a couple of VW wagons and an Audi A3. And clearly, this difficulty making good software is likely to be more of a problem for a fully electric car. I've never understood why a good company like VW can't fix a problem that has been around for so long. Any ideas why?
Tesla's market cap is now EU 1017 billion, with VW 24 times smaller at 43b. Perhaps VW should just give up and let Musk buy it. And get his people to fix the software when he has some time off from making Teslas, launching satellites and going to Mars, restoring free speech and fixing the US federal government. That proposal would get my shareholder vote.
dtb
No. of Recommendations: 0
Too hard pile.
No. of Recommendations: 3
Not to mention that (to oversimplify) the supervisory board's mandate is to maximize employment in the state, not shareholder returns. This is not a good recipe for controlling costs, no matter how the current mini battles end.
And, of course, the second-worst management of any big German firm. *
One could credibly call them both incompetent and untrustworthy.
Jim
* Deutsche Bank clearly deserves that crown, no contest.
No. of Recommendations: 3
if you are bullish in VW, wont it better to buy POAHY instead?
I bought and sold poahy.
VW is trying to get software from Rivian. Maybe RIVN is a better investment
No. of Recommendations: 2
f you are bullish in VW, wont it better to buy POAHY instead?
I bought and sold poahy.
VW is trying to get software from Rivian. Maybe RIVN is a better investment
I am familiar with Porsche as a subsidiary of VW (VW owns 75%), but not as a separate investment. I see that Porsche SE owns a 31.9% stake in Volkswagen AG and a 12.5% stake in Porsche AG, so this might indeed be an interesting way of buying VW, if I could get my head around the idea, so thanks for pointing it out.
My first stab at understanding this:
Porsche SE has a market cap of €10.325b. It is listed as having revenues of €5.4b, and earnings of €2.5b (insane margins). By comparison, VW had revenues of €322b last year, so clearly, Porsche is not consolidating VW revenues in its income statement.
Like VW, Porsche SE is trading at about 3x net earnings, so both companies are in the doghouse. With Porsche SE's 31.9% stake in VW, things could go well for the investment if either VW or Porsche turned things around.
Anyways, this may be all wrong. If you have any insight to share, I would be happy to hear it.
No. of Recommendations: 3
It’s not just VW is cheap. So is BMW and Mercedes. POAHY and VW seems a forever value trap. BMW might be a better bet. But still, they are capital intensive and labor intensive.
No. of Recommendations: 2
It’s not just VW is cheap. So is BMW and Mercedes. POAHY and VW seems a forever value trap. BMW might be a better bet. But still, they are capital intensive and labor intensive.
Yes, for sure, no argument there, there are a lot of problems. But you want to but when there's blood in the streets, right? You pay a high price for a cheery consensus, someone once said. So the question is, is any of this fixable?
At 3.5x TTM earnings, you are getting a great price if the current problems just remain about the same. And if the German economy recovers, or if they start getting Russian gas flowing back into the country, or if they get some wage reductions in Germany, or if you get a conservative government back in power in Germany and they decide that having reliable power is important, or if part of the Trump tarriff threat is a negotiating tactic, or if Europe decides to protect its auto industry from Chinese imports, ... I think a lot of these ifs might actually happen.
Of course, if you extrapolate from their one sub €3b quarter (the most recent one, with €1.2b), and assume that that is their new profit level, then their €41b market cap is 9x earnings, and it's not a great deal. That just seems too pessimistic for me. Their last 4 full years of earnings have been €8b (2020), €15b (2021), €15b (2022) and €16b (2023), but now they're going to be at €4b a year indefinitely? Possible, but unlikely, I think. But it's a small bet.
dtb
No. of Recommendations: 4
>> ... or if they get some wage reductions in Germany, or if....
I think a lot of these ifs might actually happen.<<
You can shorten your list as the above one will never happen.
It's against the German system, against the way unions and employers work peaceful and in harmony together (I say "peaceful" and "in harmony" as at least here worker strikes and the equivalent of employers, "Aussperrungen" (Lockouts), are symbolic gestures for the respective clientele, with both sides at the negotiating table already knowing on what they will agree in the end.
There are never wage reductions (for the same work hours, that is), as this would bring that system to fall. "We" use other means. That's why the German flexibility was admired internationally years ago when the industry was in trouble and unions and industry agreed on "Kurzarbeit" (reduction of work hours) instead to save workers from being laid off. That's possible (and eventually postponing of wage increases), but real wage reductions are taboo.
No. of Recommendations: 6
tangentially, just heard that tesla has been adding about the VW mkt cap PER DAY for a few weeks.
to justify based on TAM, the global mean price of cars has to double, and tesla needs to capture that at ~50%.
haven't cranked the numbers myself, but musk will need those trump chinese tariffs to really ratchet up the price...and not just in america.
maybe also make a mandatory charge for future FSD software that's more than the car itself.
fanboys, this is not the expectations investing you are looking for.
No. of Recommendations: 4
tesla has been adding about the VW mkt cap PER DAY for a few weeks.
to justify based on TAM, the global mean price of cars has to double, and tesla needs to capture that at ~50%.
That may be true, and if Tesla's future prospects were limited to selling cars for about $50,000 each, there's no way you could get to Tesla's current valuation. VW has almost 10% of the world market, so a couple of weeks of increasing by one VW mkt cap per day gets you over 100%.
But Tesla has much wider ambitions. They hope to corner the market for self-driving, build robotaxis, generate and store electricity, and other things. Musk said that the personal robot they are developing has a larger TAM than cars, and a better profit margin. Whether it all works out anywhere near these ambitions is highly debatable, but Tesla shareholders (I am unfortunately not one of them) are not basing their analysis, such as it is, on the TAM of cars.
No. of Recommendations: 3
agreed, the tesla sentiment is never been much about tracking the veracity and $ucess rate of promises in musk's twitter posts. somehow, those posts are seen with less skepticism than the actual investor decks of competitors.
when i say 'expectations', it is in the MM sense of operational business units whether in profit or growth mode. not w/regards to booking a trip to mars.
No. of Recommendations: 2
DTB, this is an article about VW from "Berliner Zeitung", a relatively small German newspaper I like because it's politically quite unbiased, reporting in each direction (contrary to the large papers).
https://www.berliner-zeitung.de/wirtschaft-verantw...It's in German but if you can let the whole page translate by Google/Deepl or so it might give you a picture of VW's troubles from a German perspective.
No. of Recommendations: 4
article about VW from "Berliner Zeitung", a relatively small German newspaper I like because it's politically quite unbiased...
Danke schön, Said. I read the article and only had to look up a couple of words. Clearly they are very pessimistic about VW holding it's important 2-3 million unit sales in China (out of about 9 million units worldwide), and I think that pessimism is entirely justified. I still think that the ICE part of their business (Verbrenner, as they say in the article, literally 'burners') is going to have a pretty long tail, before battery vehicles take over completely in 15-20 years, but it is obvious that all the legacy builders are going to have to make that difficult transition at some point and they are probably all in trouble.
I don't currently have shares (I bought some more in the low 80s and sold them for a small profit when the price jumped back over 90), but I'm still interested. VW is trading at about 3x this year's expected profits, while Toyota is at 9x, with most of the same problems. So I think the legitimate pessimism from the catastrophic German energy situation, the difficult labour laws and traditions in Germany, the bad management, and their difficulties with software development) may already be adequately priced in, and any corrections to these factors could make this a profitable investment. I agree that the German labour situation is unlikely to change, but the high cost of energy in Germany could change rapidly if Germany can get Russian gas again, and high labour costs in Germany can be avoided as VW shifts production out of Germany (to China, Mexico, Slovakia, wherever) which it has been doing for decades. I'm not so optimistic about management and the chronic failure to develop better software, I think that is the real reason to worry that VW may be a value trap, with profits drifting down and even bankruptcy as a possibility.
At some price, even the worst company in the world might make sense as an investment, given that there's always a non-zero probability that they might turns things around. My reason for selling is that I am trying to reduce my overall exposure to stocks, to have at least 20% cash, so I have been culling my borderline investments like this one, but it's a fascinating story to follow anyways.
dtb
No. of Recommendations: 3
Thanks for the VW discussion. I pulled the trigger in November, and it's done nicely, up nearly 40%. And that doesn't include the dividend which was over 10% at the time I purchased. Not something I would have discovered on my own.
John
