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Analysis: Electric shock - German auto stocks get a new lease of life

Stock MarketsMar 22, 2021 05:00AM ET
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4/4 © Reuters. Presentation of Volkswagen's electric ID.3 pre-production prototype car on the eve of the International Frankfurt Motor Show IAA in Frankfurt 2/4

By Danilo Masoni and Thyagaraju Adinarayan

LONDON (Reuters) - Volkswagen (DE:VOWG_p) and BMW's plans to grab market share in the fast-growing electric car market and challenge Tesla (NASDAQ:TSLA) could shift the dial for their cheaply priced shares.

A deadline set by many countries to go carbon-free by 2050 has led to rising adoption of zero-emission vehicles and Tesla has been at the forefront of this transformation, selling long-range battery electric vehicles (BEVs).

Despite a recent pullback, its stock has soared 650% in the last year, helped also by a cult following for CEO Elon Musk.

But it is no longer the only electrification play in town.

Volkswagen, the German company competing with Toyota to be the world's biggest vehicle seller by volume, laid out its ambitious plan to turn 70% of European sales at its core VW brand electric during its "power day" last Monday.

The plan, months in the making, has helped to fuel a Tesla-esque rally in the 83-year old company's shares, with CEO Herbert Diess even taking to Twitter, Elon Musk-style to crow as the company's market value crossed 100 billion euros ($119 billion) earlier this month.

The stock is now up 52% year-to-date, taking its market value to 143 billion euros.

"With VW's CEO really pushing the message on BEVs across all channels (conventional media, investors as well as Twitter and LinkedIn (NYSE:LNKD)) we believe the private investors are picking up on this story and could be quite a powerful force by themselves," said Barclays (LON:BARC) analyst Kai Alexander Mueller.

German rival BMW, meanwhile, said on Wednesday it was aiming for half of its sales to be non-fossil fuel vehicles by 2030, and that around 90% of its market categories would have fully-electric models available by 2023.

REBIRTH

"No one can know today who will win in the global electric car market, but while there is greater balance among the players, in stock market valuations there is unprecedented imbalance between early adopters and those who are becoming so," said Alessandro Fugnoli, a strategist at Kairos in Milan, calling it "the rebirth of the German auto".

UBS recently forecast Volkswagen would match Tesla's output by 2025 and raised the price target on the company's shares by 50% to 300 euros - the most bullish target among the 28 analysts covering the stock. The stock is currently at about 223 euros.

Valuation comparisons are also supportive.

At 160 times forward earnings, Tesla is by far the most expensive stock in the autos sector, whereas Volkswagen and BMW still trade at only around 9-10 times forward earnings.

"European carmakers, from a size and balance sheet perspective are well positioned to re-orient themselves towards electrification and they have strong distribution platforms," said Sunil Krishnan, head of multi-asset funds at Aviva (LON:AV) Investors.

What's more, Volkswagen is also considering listing luxury car arm Porsche AG to help raise funds for investments in software and electric vehicles, according to a source.

STILL A VALUE PLAY

Despite its recent gains, Volkswagen's market value is still only about a quarter of Tesla's, and several analysts see further room for gains at both the German group and across the European autos industry.

"Abandoned by all, and in particular by investors, the German auto industry, after eating a lot of dust and falling in a state of disrepair, understands that adherence to electrics must be total," Fugnoli said.

As well as lifting German autos stocks, the electrification drive is helping to boost broader European equity markets, which have long underperformed those in the United States.

Germany's DAX has been setting new record highs in March.

With positioning and flows into European equities still relatively weak, some investors think that could soon change. BofA's weekly flow data for March 10-17 showed fund managers withdrew $1 billion from Europe, while pumping a record $53 billion into U.S. equities.

Still, few think European indexes will attract the frenzied buying seen by tech stocks on the U.S. Nasdaq in recent years.

"In Europe, it will remain a stock specific issue for a while, we won't be looking at the Euro50 this year as a tech index," Aviva's Kirshnan said.

"But these things can change quickly - look how quickly VW moved up in the market cap pecking order."

GRAPHIC: Market cap race: Tesla vs. top car sellers - https://fingfx.thomsonreuters.com/gfx/buzz/ygdvzgkxapw/Pasted%20image%201616157417740.png

Analysis: Electric shock - German auto stocks get a new lease of life
 

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Comments (2)
Ricardo Tardelli
Ricardo Tardelli Mar 22, 2021 5:05AM ET
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It is pretty critical to observ how the cars company do not communicate on the very bvad recycling % of the electrical batteries. EV recycling cost is very high and not mature. Besides, there is not enough Lithium for 1 billion cars on the planet. Humans have a very strong capacity for self destruction, because of Greed. Air compressed engines are the solutions.
Ricardo Tardelli
Ricardo Tardelli Mar 22, 2021 3:57AM ET
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2 french companies invented and patented the compressed air engine which has enormous advantages linked to the total absence of CO2 emissions but also a very low cost per kilometer (2 € per 100km) and maintenance (no more oil or candles to manage), durability (50 years). This is the MDI company: https://fr.mdi.lu/airpod-2-0 The Airpod 2.0 model occupies 3 times less space than a conventional car, which still has the advantage of space management in cities. There is also another company which specializes in large engines for trucks: Anthos Air Power: https://www.normandie-energies.com/membre/anthos-air-power-normandie/ ---> It will be sufficiant to tax compressed air so that the states will gather money and will compensate the specific taxes on gasoil (taxes on petroleum products) which amounts to 14.5 billion euros for 2020.  .
 
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