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March 23, 2021, 9:14 a.m. EDT

Volkswagen’s BEV sales could beat Tesla’s next year, says Deutsche Bank

By Barbara Kollmeyer

With shares up more than 50% so far this year, Volkswagen has been showing its teeth in the red-hot automobile industry race to produce electric vehicles.

And by next year, the German auto maker’s battery-electric vehicle (BEV) sales could outpace that of industry giant Tesla (NAS:TSLA) , said Deutsche Bank analysts, who lifted their price target on buy-rated Volkswagen (ETR:XE:VOW) to €270 from €185 per share in a note to clients on Monday.

With a new target for electric vehicles of 1 million this year, the majority of which will be BEV, Volkswagen should come “very close to Tesla’s BEV sales,” said a team of analysts led by Tim Rokossa.

“Moreover, with the global rollout of the ID.4 we see a good chance that VW could surpass Tesla’s BEV sales as soon as next year, which should increase the credit given to its EV strategy,” said Rokossa. The ID.4, the company’s compact 5-seat crossover SUV, is set to hit dealerships this spring.

Volkswagen last week laid out its plans to cut battery costs and rely on six European gigafactories, with EVs now the company’s “core business,” said Herbert Diess, the chair of the group’s board of management.

Rokossa and the team also introduced a “blue-sky scenario” that values the BEV unit separately. “Applying the multiples of EV pure plays such as Tesla or NIO (NYS:NIO) on sales generated by the MEB platform would yield a value of almost €400,” they said. And that even excludes the premium platform electric and current J1 platform being used by Audi and Porsche.

The MEB, or modular electric drive matrix, is a technology platform that has been developed by Volkswagen specifically for its electric vehicles.

As for the downsides to Deutsche Bank’s Volkswagen share price enthusiasm, an inability to pass on expected price rises, further euro weakness, and a slowdown in China’s premium car market are all risks. These are in addition to the “highly cyclical nature” of Volkswagen’s cash generation, they said.

Deutsche Bank also lifted its target price for Porsche (ETR:XE:PAH3) to €110 from €80. Volkswagen-owned Porsche holds the majority of VW ordinary shares. The bank said it values Porsche as a “pure holding company of VW,” and that it believes a discount of 20% is warranted on the stock.

“While we acknowledge large uncertainties around the outcome of the pending compensation claims from U.S. investors (which we value at €2 billion), we believe the upside to our VW ordinary share target price more than compensates for these uncertainties,” said Rokossa and the team.

Shares of Volkswagen have surged 57% so far this year, versus a 7% drop for Tesla, though that is following a phenomenal 700%-plus run in 2020 for Elon Musk’s company. Shares of the up-and-coming German rival fell 13% in 2020.

Deutsche Bank analysts also noted that Volkswagen’s common shares have strongly surpassed preferred shares (ETR:XE:VOW3) (OTC:VLKPF) in recent days, with the latter up just 38% year to date.

“At this point, we do not have a precise answer to explain this spread. Possible scenarios could be the holding purchasing more common shares or an activist investor trying to accumulate a position,” said the analysts.

Link to MarketWatch's Slice.