Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Volkswagen Achieves Global Auto Domination

Volkswagen (OTC: VLKAF) has achieved Chief Executive Martin Winterkorn’s goal of becoming the number one automaker in the world. News reports indicate that VW made 5.04 million cars in the first half of 2015, enabling it to surpass rival Toyota Motors (NYSE: TM), which made 5.04 million vehicles in the same timeframe.

VW was also the world’s top automaker in terms of revenue, reporting a TTM revenue figure of $254.7 billion on June 30, 2015. Yet all is not well in the in the world of Das Auto.

Volkswagen’s revenue has dropped dramatically over the past year, falling from a high of $267.61 billion in June 2014 to $254.7 billion. That is a loss of $12.91 billion in revenue in a year, which is obviously very, very bad. That gives Volkswagen a negative revenue growth rate of -11.39%.

It's easy to see why Martin Winterkorn is smiling VW is now the world's number one carmaker.
It’s easy to see why Martin Winterkorn is smiling VW is now the world’s number one carmaker.

The interesting thing is that Volkswagen is still a really great investment despite its losses. It posted some really impressive financial numbers on June 30, 2015, including:

  • A diluted EPS of 25.94 (no you’re no imagining things; it is real, if YCharts can be relied upon).


  • A net income of $13.01 billion.


  • A profit margin of 4.77%.


  • A forward dividend yield of 2.57%.


  • A dividend yield of 2.57%.

  • A PE ratio of 8.052.


  • A free cash flow of $468.88 million.


  • A return on equity of 11.84%.


Volkswagen might also be a very undervalued stock. It had an enterprise value of $188.32 billion and a market cap of $99.39 billion on August 6, 2015, which indicates that its share price of $208.91 was too low.


In spite of its revenue losses, Volkswagen looks like a value investment and a good buy. If you’ve got some money to spend and you’re looking for an auto company to buy into, this might be it.

VW’s Cloudy Future

There are some clouds upon Volkswagen’s horizon. Observers note that it is highly dependent upon two very sick economies, Europe and China, for growth. VW has been hit hard by the economic turmoil generated by the collapse of the Chinese stock market.

Bloomberg reported that VW’s deliveries in China fell by 3.9% in the first six months of 2015. That means its lead might not be sustainable.

Other markets, including Russia and South America, are in sorry shape, which threatens the company’s future. Unless space aliens start buying cars or the Chinese economy recovers rapidly, it could have a hard time expanding.


Volkswagen’s performance in the United States has been a mixed bag; its sales grew by 4.4%, but VW lacks a presence in some of the more lucrative segments of the U.S. market, including pickup trucks and work vans. Its strength is in passenger cars, where it faces growing competition from American brands like Ford (NYSE: F) and the potential menace of Tesla Motors (NASDAQ: TSLA) electric vehicles on the horizon.

Volkswagen also has serious weaknesses in trucks; its MAN SE Truck Unit reported an operating loss of €19 ($21 million) in the second quarter of 2015, Bloomberg reported. The losses come from falls in demand in Latin America and reorganization of the European truck division. MAN’s orders fell by around 7% in the second quarter.

MAN is still lagging far behind its rival Daimler (OTC: DDAIF), which dominates the European truck business. It also lacks a serious presence in the United States, where Daimler owns Freightliner.

Even though VW is winning the auto wars, it still faces a long, bloody struggle just to maintain its current position. Volkswagen is a good company, but it will need to make major changes to adapt to a radically changing global auto market. In particular, it faces the end of growth in the auto market and disruptive technologies such as electric cars, fuel cells and the advent of self-driving cars. Can VW maintain its newfound position, or does it face a long decline?