Uncertainty over the future of current Volkswagen (VWAGY) CEO Herbert Diess has weighed on shares of the German automaker in the latter half of 2021, observes Jason Clark, value investor and contributing editor to The Prudent Speculator.
A standoff ensued between the Porsche-Piëch family (the Volkswagen Group’s largest shareholders) and German unions after Mr. Diess’ suggestion in September of a 30,000-person job cut roiled its labor base.
But Mr. Diess and his backers (including the Porsche-Piëch family) reached an agreement for him to stay in his post, while ceding responsibility for the Group’s mass-market brands to VW brand chief Ralf Brandstätter.
The German automaker also has several additional irons in the fire, with chatter of a Porsche IPO, the ongoing chip shortage and a possible deal for its battery division making headlines just in the past week.
Three distinct partnerships were announced to supply materials for the battery division, supporting plans to build six large-cell factories with partners across Europe. The unit is targeted to reach sales of 20 billion euros by the end of the decade.
With regard to Porsche, management attributed the news to speculation, but many see the cash afforded by a deal as needed to fund the Groups electric vehicle effort. We would not be surprised or opposed if a deal comes to fruition. We think the current valuation of the enterprise significantly undervalues the sports car maker and have previously written of the luxury brand’s significant profitability and cash generation.
We think Porsche would command a significant multiple if offered independently and note that competitor Ferrari trades at an enterprise value multiple of over 40 times operating income expected for 2021! Such a multiple would value Porsche well over 100 billion euros.
We continue to like VWAGY’s differentiated brands that target volume (VW, Skoda, Seat), premium buyers even without Porsche (Audi, Lamborghini, Bentley), and trucks (MAN, Scania). We expect the chip shortages to be resolved in due time (although we have no concrete timeline) and we think highly of VW’s electric car future.
With plenty of enthusiasm remaining for often-profitless and even revenue-less stocks in the EV space, we continue to have a liking for value-priced Volkswagen. Our target price for VWAGY is $55.