Now that nearly three years have passed since the diesel scandal first broke, many people will be wondering if Volkswagen (OTC: VLKAY) makes money. Others will ask if VW is now a value investment because of the scandal.
After all Volkswagen is still one of the world’s most successful automotive brands. Among other things it is the most popular foreign car brand in China; with 16.4% of the auto market in the People’s Republic. It is also the largest automaker in Europe, with 22.3% of the market on that continent. VW’s share of the world car market was 11.9%.
Volkswagen is also making major investments in electric cars that dwarf Tesla’s (NASDAQ: TSLA) spending. These include a $2 billion subsidiary called Electrify America LLC which will build a network of 200 fast charging stations across the United States and install 300 chargers for electric vehicles in 15 cities, Bloomberg reported. That investment is part of the $14.7 billion settlement VW made with the US government for violating emissions standards laws.
Is Volkswagen a Better Investment than Tesla?
There also rumors that VW will build its own gigafactory to compete with Tesla’s. Tesla’s factory is supposed to be able to build enough lithium battery backs a year to store a billion watts of electricity or a gigawatt. Volkswagen has plans to produce 30 different electric vehicles over the next decade, Road Show reported.
If all that was not enough, VW is also investing heavily in self-driving vehicles. That includes a $180 million stake in the Chinese artificial intelligence company Mobvoi, Car Insurance Samurai reported. Mobvoi is working to produce voice controlled cars.
All this might make Volkswagen a good cheap alternative to Tesla. After all VW was trading at $29.30 a share on April 11, 2017; while Tesla was trading at a ludicrous $309. That means you can buy a little over 10 shares of Volkswagen for the price of one share of Tesla, which sounds like a much better deal to me.
Volkswagen is far More Valuable than Tesla
Data from ycharts indicates that Volkswagen is far more valuable than Tesla. Some reasons why Volkswagen is a far better investment than Tesla include:
- Revenues of $236.64 billion in September 2016. Tesla reported revenues of $7 billion in December 2016.
- A net income of $828 million in December 2016. Tesla reported a loss of -$675.91 million in December 2016.
- A free cash flow of $308.14 million in September 2016. Tesla reported a negative free cash flow of -$1.129 billion in December 2016.
- Assets of $453.12 billion in September 2016. Tesla reported assets of $22.66 billion in December 2016.
- Cash and short-term investments of $49.21 billion in September 2016. Tesla reported $3.393 billion in the bank on December 31, 2016.
- $16.26 billion in cash from financing in September 2016. Tesla generated $3.744 billion cash from financing in Fourth Quarter 2016.
- $13.02 billion in cash from operations in September 2016. Tesla reported losing $123.83 million from its operations in Fourth Quarter 2016.
- An enterprise value of $$155.01 billion on April 10, 2017. Tesla had an enterprise value of $55.5 billion on the same day.
- A market capitalization of $73.43 billion on April 11, 2017. Tesla obtained a market capitalization of $50.46 billion on the same day.
All this indicates that Volkswagen is a very cash-rich company that is definitely undervalued by the markets. It also fits the value investing criteria of a really good company going through a rough stretch.
Interestingly enough now might not be the time to buy VW because more troubles might around the corner. The diesel scandal and its potential costs to Volkswagen is far from over.
The Diesel Scandal is far from Over
VW might be forced to recall 475,000 diesels in the USA and 10.5 vehicles worldwide because of the scandal, Car and Driver’s Clifford Atiyeh noted. Atiyeh listed 12 Volkswagen, Porsche and Audi models in the U.S. that might be subject to recall.
Those TDI vehicles were equipped with software that implements a test mode designed to trick emissions testers into certifying them as clean. The test mode put out a lot less pollutants than the vehicle’s normal operating mode. This violated emissions standards and led to the lawsuit and $14.6 billion settlement.
Among other things the settlement includes a $10 billion buyback program for the offending vehicles. The buybacks started in November, 2016, and around 340,000 owners had signed up for it as October 16.
Volkswagen vs. Tesla
That will be expensive but it is not as bad for VW as you might think. Volkswagen would still have $34.61 billion in the bank, after paying the settlement and buying back all the diesels.
After the settlement, VW would still have enough money in the bank to build several gigafactories and a charger network many times the size of Tesla’s. Not to mention enough cash to buy dozens of self-driving car startups.
Beyond that Volkswagen has a huge network of dealerships through which to market electric vehicles, 1,018 in the United States alone. Tesla is not allowed in a number of US states because it lacks a dealership system.
It’s not just dealerships; Volkswagen has a definite edge in production with 120 plants in 31 countries. Tesla has just one working auto factory in just one country the United States and the Gigafactory in Nevada.
All this gives Volkswagen what might be an insurmountable lead in the electric car race. Even the U.S. settlement helps it because VW is investing part of the money in electric car marketing.
Volkswagen is a Good Investment
There’s something else at Volkswagen that Tesla lacks, which value investors will appreciate: a dividend.
Volkswagen shareholders are scheduled to receive a 41.99¢ dividend on May 10, 2017. That’s nearly 17 times the 2.5¢ divided VW paid in 2016, but less than half the $1.08 a share dividend they received in 2015.
To add icing to the cake, Volkswagen’s dividend is likely to increase in coming years because its revenues are growing again. VW reported revenues of $235.83 billion in June 2016 and $236.64 billion in September 2016. That’s still well below the $268.63 billion in revenues from December 2014, but it might mark a turnaround.
Two years after the diesel scandal, Volkswagen is a great company that is well positioned for growth. If you’re looking for an auto stock to hold for a long time, VW is definitely one to consider.