What's Happening With VW Stock?
Volkswagen stock (OTCMKTS: VWAGY) has seen a decline, with the stock dropping roughly 20% over the last twelve months. In contrast, competitor GM's shares have largely remained stable during the same timeframe. Several factors have influenced the stock performance in recent quarters, including a weak macroeconomic climate, high domestic costs, sluggish EV demand, and increasing competition from lower-cost Chinese manufacturers.
Volkswagen's U.S. operations are also experiencing significant challenges due to the extensive tariffs enacted by President Donald Trump. Approximately one-third of Volkswagen-branded vehicles sold in the U.S. are imported, with 100% of Audi and Porsche vehicles sold domestically being imported. The company has revealed intentions for considerable investments in the U.S., although these are expected to unfold over an extended period. China, the company's largest single market, continues to be challenging amidst an intense price competition and the emergence of local EV brands. Group sales in China decreased by 9.5% to 2.9 million units last year. In response, Volkswagen is intensifying its localization efforts, planning to introduce over 30 new models in China within the next three years, consisting of both ICE vehicles and new energy vehicles specifically designed for local buyers.
VW is also aiming to significantly streamline its German operations through a comprehensive restructuring. The company intends to reduce production capacity in Germany by more than 700,000 units and decrease its workforce by 35,000, primarily through voluntary departures, by the end of this decade. These initiatives are intended to restore profitability in Europe, where demand has declined and costs remain high. VW is also shifting its Wolfsburg plant to become a center for its EV future. The production of a new entry-level EV, priced around Euro 20,000 ($21,000), is slated to begin there in 2027. The auto giant anticipates that affordable EVs will be crucial in helping it regain market share, especially as pricing becomes more competitive. Separately, if you're seeking growth with a smoother experience than an individual stock, consider the High Quality portfolio, which has outperformed the S&P and achieved >91% returns since its inception.
We believe that VW stock appears to be a reasonable value at current levels of approximately $10 per share. VW stock is trading at around 5x trailing earnings, which is even lower than U.S. automaker Ford, which trades at about 6x. The stock also boasts a substantial dividend yield nearing 7%. Although VW's transition to EVs may be progressing slowly, the company could possess certain advantages in the long term. VW has a broad range of brands that can provide consumers with significant options while offering the company economies of scale as it standardizes its platforms, potentially enhancing margins. VW is also concentrating on backward integrating its EV operations by investing in the development of its battery facilities. The company has also taken steps to unlock value from its brand portfolio.
VW made its sports car brand Porsche public in 2022, and we believe it might consider doing the same with its Lamborghini supercar brand, particularly in light of the premium investors are willing to pay for luxury and performance brands. For instance, Ferrari has a market cap exceeding $80 billion, surpassing VW's current market valuation. We estimate VW stock is worth around $12 per share, which is approximately 20% above the current market price. Check out our interactive analysis on Volkswagen Valuation: Expensive Or Cheap? for further insights. View our dashboard on Volkswagen Revenue for an overview of Volkswagen's business model and the expected trends in its revenues.
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