On Tuesday, UBS expressed concerns regarding Volkswagen AG's (VOW:GR) (OTC: OTC:VWAGY) path to meet the stringent 2025 CO2 emissions goals set by the EU. The firm highlighted that Volkswagen (ETR:VOWG_p) CEO Oliver Blume has deemed the 2025 targets as too ambitious.
During the Q4 earnings call, Blume emphasized the need for more immediate regulatory flexibility, despite affirming Volkswagen's commitment to a battery-electric future.
According to UBS, Volkswagen faces the most significant challenge among automakers to increase its battery-electric vehicle (BEV) sales from a 15% market share in the estimated 2023 to 24% by 2025. The firm's analysis suggests that Volkswagen's strategy hinges on the introduction of new premium and luxury models from its Audi and Porsche brands, as affordable BEVs from Volkswagen are not expected until 2026.
UBS estimates that achieving full compliance with the 2025 CO2 regulations could lead to a 7% negative operating profit impact for Volkswagen, compared to the estimated figures for 2023. This forecast assumes a complete shift to BEVs, which currently have a contribution margin approximately 15 percentage points lower than internal combustion engine vehicles.
The potential for Volkswagen to engage in pooling agreements as a strategy to meet CO2 targets was also discussed. However, UBS considers it unlikely that Volkswagen would partner with its main EV competitors in such arrangements, given the challenges of finding suitable high-volume pooling partners.
The report concludes by noting that the market may be underestimating the risks associated with Volkswagen's CO2 compliance, as the current focus is predominantly on the company's strong internal combustion engine launch cycle planned for its volume brands in 2024.
InvestingPro Insights
As Volkswagen AG (OTC: VWAGY) navigates the challenges of meeting EU CO2 emissions goals, financial metrics from InvestingPro provide a broader perspective on the company's current market standing. Volkswagen is trading at a low Price / Book multiple of 0.4, indicating that the company's stock may be undervalued compared to its book value. Additionally, with a P/E Ratio of 4.65 and an adjusted P/E Ratio for the last twelve months as of Q4 2023 at 4.15, VWAGY is trading at a low earnings multiple relative to near-term earnings growth. This could suggest that the stock is potentially attractive to value investors.
InvestingPro Tips highlight that Volkswagen is not only a prominent player in the Automobiles industry but also pays a significant dividend to shareholders with a dividend yield of 4.02%. The company has a history of maintaining dividend payments for 33 consecutive years, which may appeal to income-focused investors. Moreover, analysts predict the company will be profitable this year, having been profitable over the last twelve months, providing a sense of stability in terms of earnings.
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