Analysis: Electric shock – German auto stocks get a new lease of life

LONDON (Reuters) – Volkswagen and BMW’s plans to grab market share in the fast-growing electric car market and challenge Tesla could shift the dial for their cheaply priced shares.

A deadline set by many countries to go carbon-free by 2050 has led to rising adoption of zero-emission vehicles and Tesla has been at the forefront of this transformation, selling long-range battery electric vehicles (BEVs).

Despite a recent pullback, its stock has soared 650% in the last year, helped also by a cult following for CEO Elon Musk.

But it is no longer the only electrification play in town.

Volkswagen, the German company competing with Toyota to be the world’s biggest vehicle seller by volume, laid out its ambitious plan to turn 70% of European sales at its core VW brand electric during its “power day” last Monday.

The plan, months in the making, has helped to fuel a Tesla-esque rally in the 83-year old company’s shares, with CEO Herbert Diess even taking to Twitter, Elon Musk-style to crow as the company’s market value crossed 100 billion euros ($119 billion) earlier this month.

The stock is now up 52% year-to-date, taking its market value to 143 billion euros.

“With VW’s CEO really pushing the message on BEVs across all channels (conventional media, investors as well as Twitter and LinkedIn) we believe the private investors are picking up on this story and could be quite a powerful force by themselves,” said Barclays analyst Kai Alexander Mueller.

German rival BMW, meanwhile, said on Wednesday it was aiming for half of its sales to be non-fossil fuel vehicles by 2030, and that around 90% of its market categories would have fully-electric models available by 2023.Slideshow ( 2 images )

REBIRTH

“No one can know today who will win in the global electric car market, but while there is greater balance among the players, in stock market valuations there is unprecedented imbalance between early adopters and those who are becoming so,” said Alessandro Fugnoli, a strategist at Kairos in Milan, calling it “the rebirth of the German auto”.

UBS recently forecast Volkswagen would match Tesla’s output by 2025 and raised the price target on the company’s shares by 50% to 300 euros – the most bullish target among the 28 analysts covering the stock. The stock is currently at about 223 euros.

Valuation comparisons are also supportive.

At 160 times forward earnings, Tesla is by far the most expensive stock in the autos sector, whereas Volkswagen and BMW still trade at only around 9-10 times forward earnings.

“European carmakers, from a size and balance sheet perspective are well positioned to re-orient themselves towards electrification and they have strong distribution platforms,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors.

What’s more, Volkswagen is also considering listing luxury car arm Porsche AG to help raise funds for investments in software and electric vehicles, according to a source.

STILL A VALUE PLAY

Despite its recent gains, Volkswagen’s market value is still only about a quarter of Tesla’s, and several analysts see further room for gains at both the German group and across the European autos industry.

“Abandoned by all, and in particular by investors, the German auto industry, after eating a lot of dust and falling in a state of disrepair, understands that adherence to electrics must be total,” Fugnoli said.

As well as lifting German autos stocks, the electrification drive is helping to boost broader European equity markets, which have long underperformed those in the United States.

Germany’s DAX has been setting new record highs in March.

With positioning and flows into European equities still relatively weak, some investors think that could soon change. BofA’s weekly flow data for March 10-17 showed fund managers withdrew $1 billion from Europe, while pumping a record $53 billion into U.S. equities.

Still, few think European indexes will attract the frenzied buying seen by tech stocks on the U.S. Nasdaq in recent years.

“In Europe, it will remain a stock specific issue for a while, we won’t be looking at the Euro50 this year as a tech index,” Aviva’s Kirshnan said.

“But these things can change quickly – look how quickly VW moved up in the market cap pecking order.”

GRAPHIC: Market cap race: Tesla vs. top car sellers –

Reuters Graphic

Volkswagen overtakes SAP to become Germany’s most valuable blue-chip

(Reuters) – Volkswagen overtook software maker SAP on Wednesday as the most valuable company in Germany’s blue-chip DAX index, as investors warm to the carmaker’s plans to take on Tesla.

Volkswagen shares rose as much as 12%, giving the company a market valuation of more than 136 billion euros ($162 billion), compared with SAP’s 127 billion.

Volkswagen shares have gained 47% year-to-date, supported by a raft of announcements on its electric vehicle expansion strategy, which culminated in a “Power Day” this week including plans to build six gigafactories in Europe by 2030.

Chief Executive Herbert Diess said on Tuesday he thought Volkswagen, the world’s second-largest carmaker after Toyota, was worth 200 billion euros, still a far cry from Tesla’s $650 billion market value.

($1 = 0.8401 euros)

VW says electric car production in Spain hinges on EU support

Spanish automaker SEAT’s parent company Volkswagen wants a firm commitment from Brussels to support a potential project to manufacture electric cars in Spain, the German group’s chief executive officer Herbert Diess said on Friday.

The Spanish government announced on Thursday it will use European Union funds to create a public-private consortium with SEAT and power company Iberdrola that would build the country’s first factory for electric-car batteries.

SEAT said last year it was considering producing a small electric vehicle in Spain from 2025, but tied it to receiving public aid as carmakers ramp up production of electric vehicles to meet tougher emissions regulations.

Diess told an event at SEAT’s plant in Martorell near Barcelona, which was attended by Spanish King Felipe and Prime Minister Pedro Sanchez, that the potential project would include battery production and receive EU’s pandemic recovery funds, but stressed more backing was needed.

“We hope for the willingness of the European Commission to let this flagship project of historic importance for Spain and Europe become reality,” Diess said.

“The successful transformation of the Spanish auto industry will hinge upon a clear commitment by the European Commission,” he added, without elaborating.

As Europe’s second largest car manufacturer, Spain has the potential to become an electric mobility hub, he said. SEAT-branded electric cars are currently manufactured in Germany and Slovakia.

SEAT Chairman Wayne Griffiths said his company was seeking a broad alliance with Iberdrola, phone operator Telefonica and Caixabank, as well as other Spanish companies, to meet its electric mobility goal.

At SEAT’s plant, King Felipe said Spain’s strategy to develop electric vehicles was “irreversible” and that authorities will give their total support to the automotive sector, that accounts for 8% of the economy.

Porsche to participate in fundraising of electric supercar maker Rimac: Automobilwoche

Volkswagen unit Porsche is participating in a financing round of Rimac Automobili that will see the electric supercar maker raise 130 million-150 million euros ($157 million-$181 million), its owner Mate Rimac told weekly Automobilwoche.

The fundraising should be completed in two to three months and another round is planned at the end of the year, Rimac told the trade journal.

Porsche owns a 15.5% stake in Rimac Automobili and could raise its stake to just below 50% in a deal that would also include the transfer of Volkswagen’s supercar brand Bugatti to Rimac, Automobilwoche said.

Volkswagen and Rimac were not immediately available for comment on Sunday.

Porsche Chief Executive Oliver Blume said earlier this month that intense discussions on Bugatti’s future were ongoing and that Rimac could play a role as the brands were a good technological fit, adding that a decision was expected in the first half of 2021.

Rimac has developed an electric supercar platform, which it supplies to other carmakers, including Automobili Pininfarina.

“Supercars have a limited market, the market for components is much bigger. That is why we are planning to expand our company,” Rimac told Automobilwoche.

That includes plans to more than double Rimac Automobili’s workforce by early 2023 to 2,500 from 1,000 currently, he said.

($1 = 0.8282 euros)

Volkswagen taps Microsoft’s cloud to develop self-driving software

(Reuters) – Volkswagen AG on Thursday said it will use Microsoft Corp’s cloud computing services to help it streamline its software development efforts for self-driving cars.

Volkswagen, which owns brands such as Audi and Porsche, is working on both self-driving cars for the future and driver-assistance features such as adaptive cruise control in current vehicles. But the company’s brand had been developing those features independently.

Last year, Volkswagen consolidated some of those development efforts into a subsidiary called Car.Software to better coordinate among the makers, with each company handling its own work around the look and feel of the software while collaborating on core safety functions such as detecting obstacles.

But the various companies inside the group were still using different systems to develop that software, and the deal announced Thursday will put them on a common cloud provider, Dirk Hilgenberg, chief executive of Car.Software, told Reuters in an interview.

The Microsoft deal will also make deploying software updates to add new features to cars – a practice that helped set Tesla Inc apart from many rivals early on – much easier.

Volkswagen in 2018 inked a deal with Microsoft to connect its cars to Microsoft’s Azure cloud computing service. The Thursday deal means that the software updates will be developed on the same cloud that will then beam those updates down to the cars.

“Over-the-air updates are paramount,” Hilgenberg said. “This functionality needs to be there. If you can’t do it, you will lose ground.”

In practical terms, the deal means that cars that initially hit the road with a few driver-assistance features today could add new capabilities over time that bring them closer to autonomous driving, said Scott Guthrie, executive vice president of cloud and artificial intelligence at Microsoft.

“For our phones 15 or 20 years ago, when you bought it, it pretty much never changed. Now, we expected every week or every couple of days that, silently, there’s new features,” Guthrie told Reuters in an interview. “That ability to start to program the vehicle in richer and richer ways, and in a safe way, transforms how the experience works.”