New Volkswagen ID.4 (right) and ID.3 (left) electric automobiles on display at the storage facility automobile tower of German car maker Volkswagen in Wolfsburg, northern Germany.
Ronny Hartmann / AFP via Getty Images
Earlier this year, Volkswagen investors got some upbeat news via an aggressive plan to transform the German automobile maker into a largely electric-vehicle (EV) company.
Those goals included plans to build six new battery factories by 2030, and a forecast that by the same year, 70% of European sales will be from electrified cars. Shares surged in response, but since a mid-March high of around €255, the stock has drifted lower, trading around €211 on Thursday.
Now might be the right time to take advantage of that pullback, said analysts at Citigroup, who resumed coverage of Volkswagen with a buy rating and a €300 ($366) price target (for both Volkswagen and ordinary stock).
“With the shares appearing to have returned to a more balanced trading pattern following volatility driven by EV ‘hype’ and retail investor interest earlier in the year, we see a compelling entry point for investors,” said Citi analysts Gabriel Adler and Samantha Jelley, in a note to clients on Thursday.
“In our view, the market continues to underestimate the strength of fundamentals heading into 2022, and we think VW is likely to be one of the structural winners as the automotive industry transitions into electric powertrains,” said the team.
The global industry “remains in the throes of an inflationary supply shock,” yet consensus continues to view Volkswagen’s earnings trajectory more cautiously than its peers, said the analysts.
“While management may not be as promotional when it comes to short-term earnings forecasts as some competitors, we cannot believe VW earnings will materially underperform peers as used and new vehicle prices continue to rise across the market,” the team said. Hence, investors have a shot at an “attractive entry point to get ahead of sell-side expectations” that they expect to rise through 2021.
Citi admitted that despite its aggressive goals, Volkswagen does face some competition with big goals. The industry is dominated by Tesla, while analysts have also been getting excited about efforts from GM and Ford, which has just unveiled an electric version of its F-150 pickup. China EV makers such as NIO, Li Auto and XPeng have also crowded onto the scene.
The Citi analysts said Volkswagen’s “scale and proactive approach to meeting the EV and software challenges leave it better placed than peers.” That is as a recent restructuring, potential asset disposals, and changes in the board structure indicate “a wider acceptance of being a leader in the transition and point to deep-rooted culture challenges being addressed.”
