Last week, a well-known automaker presented its roadmap for batteries and charging by 2030.
During “Power Day,” the company revealed its plans to reduce battery costs by 50% and operate a wide-ranging charging network. It also showed off plans to intensify collaboration with suppliers to recycle up to 95% of raw materials.
Plus, the automaker announced it is aiming to open six new “gigafactories” in Europe by 2030, while also expanding its resources for electric cars.
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And following its announcement surrounding its electric vehicle (EV) and battery plans on Monday, the company saw its stock soar as much as 23% last week.
Sounds like Tesla (NASDAQ:TSLA), or maybe Nio (NYSE:NIO) right?
Nope. As many of you likely have already figured out, it was Volkswagen AG (OTCMKTS:VWAGY) — founded way back in 1937 — that made EV and stock market headlines last week.
And my Fry’s Investment Report members were along for the ride — watching their month-old recommendation soar as VW out-Tesla-ed Tesla.
Here’s how it happened…
Under the Hood
Prior to the past month, Volkswagen shares had been doing a whole lot of nothing for quite a while.
The stock was up about 30% over the last two years and sported a market value of just shy of $110 billion. The chart below shows the striking divergence between Tesla’s extraordinary stock and Volkswagen’s merely ordinary one.
Below, we look at the stocks of Tesla and VW over about the last month. As you can see, while Tesla is down 17%, Volkswagen is up 78%.
I recommended VW to my Investment Report subscribers just weeks ago, on February 12. The stock has jumped as much as 123% since then. But as some investors have taken quick profits over the last couple days, VW has retreated somewhat.
Volkswagen Group, the company, owns the Volkswagen brand of automobiles, of course. It also owns Audi, Porsche, Bentley, and other brands.
In all, VW produces 9 million to 10 million cars per year. And it does so very profitably.
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Despite the COVID-challenged conditions of 2020, VW posted gross earnings (EBITDA) of $32 billion for the year and net income of $5.1 billion.
For perspective, the company booked EBITDA of $43.6 billion in 2019. At the current quote, therefore, the stock is selling for just three times a very depressed EBITDA.
But auto sales have been rebounding, and the company’s EBITDA is on track to rebound to about $40 billion this year.
In most years, VW is the largest car company in the world. (Toyota Motor (NYSE:TM) is usually a close second.) But that status is no match for the alluring story that is powering Tesla shares from record high to record high.
By contrast, Volkswagen shares had been merely plodding along at a respectable pace — tacking on a few percentage points per year while paying a 2.7% dividend.
Kind of boring really.
EV Race’s Next Gear
But I expected that boredom to end in 2021, as Volkswagen not only recovers from the COVID bust but also establishes itself as the world’s No. 1 electric vehicle maker.
Last year, the VW Group produced just five EV models. But it will be launching several new models this year, and every year after that throughout the rest of this decade.
In 2022, for example, VW will begin selling the Audi Q5 e-tron SUV, the electric Porsche Macan, and the VW Buzz — an all-electric, retro-looking VW van.
Importantly, VW isn’t simply introducing new BEVs. It is introducing several models that compete head-to-head with Teslas.
For example, VW sold 20,000 Porsche Taycans last year and expects to boost that sales volume this year. The Taycan is a four-door sedan that rolls off the showroom floor for about $100,000 and can blast from 0 to 60 miles per hour in well under three seconds.
So too can the Tesla S, reports New York Times writer Jack Ewing. He reports:
But tests by Car and Driver confirmed Porsche’s assertion that the Taycan can replicate those blastoffs 10 times in a row, unlike the Tesla, which becomes sluggish with repeat use as the battery wears down… Porsche has found a way to maintain explosive acceleration even when the battery is not fully charged.
In all, VW expects to offer more than 50 BEV models and 30 plug-in hybrids and to be selling 3 million EVs annually by 2025.
To accomplish this feat, the company has invested gargantuan sums in R&D. Last year, VW spent about $15 billion on R&D — 10 times more than Tesla spent.
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Further, VW plans to invest $40 billion in “e-mobility” over the next few years, including $17 billion to expand its market-leading presence in China.
Meanwhile, Volkswagen is also investing heavily in battery technology in order to gain an advantage over its rivals. Last May, the company spent $1.4 billion to acquire a stake in German battery manufacturer Gotion High-Tech. Gotion develops the LFP (lithium iron phosphate) battery, which is widely used in China.
A couple months later, VW invested $300 million to boost its stake in QuantumScape Corp. (NYSE:QS), the high-tech battery venture that also attracted an investment from Bill Gates.
Although QuantumScape’s claims about its solid-state battery technology have met with skepticism, it has won enough believers to achieve a $17 billion market value.
Volkswagen owns 25.5% of QuantumScape. Yet, Volkswagen investors do not appear to be assigning much value to that $4.3 billion holding. So I think of its stock as a “free call option” on a possible breakthrough from QuantumScape.
Then, there are all those announcements VW made on “Power Day” earlier last week.
Volkswagen’s grand BEV ambitions are not merely an attempt to transition successfully to the next phase of human mobility. They are also an attempt to establish a new phase of robust profitability for the company.
And its investors.
A month ago, I predicted that “a double by the end of 2022 is well within reach.”
So far, so good.
In the brand-new issue of Fry’s Investment Report, I made my latest recommendation. It may not be able to soar to peak gains of more than 100% in a month — fast gains like that are truly rare.
But it has embarked on a new trajectory of long-term growth… growth that the 5G rollout could accelerate faster than most investors currently expect.
Regards,
Eric Fry
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NOTE: On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls —in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.
