A Rocky Start:
Volkswagen stock (OTCMKTS: VWAGY) has not been basking in the glory alongside its counterparts. While GM and Toyota have been on an uphill journey with gains of 14% and 20% respectively over the past year, VWAGY has treaded a path of decline, with a slump of about 18%. However, in 2024, the tide seems to be turning, with a 12% rise so far. The outlook, however, is not all sunshine and rainbows for Volkswagen.
The Electric Avenue:
VW has been revving its engines for an electric future, heavily investing in EVs. Yet, the fruits of this labor are slow to materialize. Sales of all-electric vehicles in Q4 2023 showed a modest 16% uptick, falling short of expectations. While VW struggles to gain traction, Tesla’s Model Y zoomed past as the top-selling vehicle in Europe last year, leaving VW in the rearview mirror.
Market Headwinds:
China, a critical market for VW, is not offering a smooth ride either. Consumer sentiment dips, the economic horizon darkens, and a swarm of nimble EV competitors pose a challenge. Amidst this turbulence, VW anticipates a dip in profits in 2024, a far cry from its previous the highs of 2023.
Speed Bumps and Potholes:
Operating margins present a gnawing concern for VW, standing at a meager 7% for the past year. In comparison, Toyota boasts a healthier 11% margin. The bumpy road for VWAGY extends over a longer stretch as well – a 25% drop since early 2021 while the S&P 500 revved up by 35%.
On The Horizon:
Is there hope on the horizon for VWAGY? Despite the headwinds, Volkswagen stock seems to offer a glimmer of hope for investors at its current price of around $14 per share. Trading at a mere 4x consensus 2024 earnings, it presents a bargain compared to other auto giants. With a robust dividend yield of nearly 8%, the stock also offers an attractive proposition.
The Silver Lining:
While the road may seem rugged, Volkswagen has a fleet of brands under its umbrella that could steer it towards smoother terrain. The company’s focus on EV integration, battery plants, and unlocking brand value, such as the recent IPO of Porsche, could be the key to reviving its fortunes. Even the prospect of spinning off the legendary Lamborghini brand indicates a strategic move to tap into the premium car segment, where investors are flocking.
| Returns | Mar 2024 MTD | 2024 YTD | 2017-24 Total |
| VWAGY Return | -7% | 12% | -49% |
| S&P 500 Return | 1% | 8% | 130% |
| Trefis Reinforced Value Portfolio | -2% | 3% | 630% |
[1] Returns as of 3/15/2024 | [2] Cumulative total returns since the end of 2016
It might be a bumpy road ahead for VWAGY, but with strategic maneuvers and a recharged focus on its strengths, the stock could rev up its engines and accelerate towards brighter horizons.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
