German car giant
is wary of the growing
stock market valuation. Tesla, which already might be the most valuable car company in America ever, is closing in on Volkswagen, Germany’s most valuable car company.
Tesla’s (ticker: TSLA) market capitalization sits at about $92 billion. Volkswagen’s (VLKAF) is at about $100 billion.
Maybe, if Volkswagen can’t beat the electric-vehicle (EV) pioneer at producing and selling clean car technology it should join them instead. Marrying old and new car technology could make sense. A merger between the two automotive giants is a very remote possibility, so what is generating this far-fetched idea?
The Financial Times reported Thursday Volkswagen CEO Herbert Diess is prepared to “slaughter sacred cows” and that the “time of the traditional auto maker was over.” What’s more, he addressed Tesla’s market capitalization, lamenting that
company was valued like a tech company while Volkswagen was valued like a car company.
Tesla stock trades at more than 76 times estimated 2020 earnings while Volkswagen trades at a multiple of about 6 times
Diess was delivering his annual address to senior executives in strong terms. Tesla may occupy his thoughts because Volkswagen has big ambitions to sell electric vehicles. The German auto maker wants to introduce 70 electric car models by 2028. What’s more, Volkswagen plans to sell 22 million EVs in coming decade.
Telsa, however, is the leader in EVs. It sold about 10 times more EVs in the U.S. in 2018 than Volkswagen, according the most recent comparable data Barron’s found.
The U.S. is the second-largest car market in the world behind China, but EVs account for just about 2% of total U.S. passenger car and truck sales.
China, along with being the largest new-car market in the world, is also the largest market for battery-powered passenger vehicles. What’s more, EV penetration in China is higher. About 1.2 million, or about 4.6%, out of 26 million new cars sold in that country in 2019 were new energy vehicles. EV penetration in China increased last year even as total cars sales declined by about 8%.
Volkswagen is already relatively huge in China, delivering 4.2 million cars there in 2019, although its EV breakdown isn’t known. Across the globe, however, Volkswagen delivered about 110,000 battery electric vehicles (BEVs) in 2019.
Tesla delivered more than 360,000 EVs globally last year. And Tesla generated almost 11% of its $6.3 billion in third-quarter sales in China. Elon Musk’s company’s Chinese sales grew more than 60% year over year.
With EV ambitions meshing and big Chinese synergies, what’s not to like about a Tesla-Volkswagen tie-up?
“Tesla should be valued like a disruptive technology company in our opinion,” Wedbush analyst Dan Ives tells Barron’s. “Man will be on mars before Tesla merges with another auto company, in our opinion.”
The market seems to agree with the analyst. Tesla stock isn’t moving on Diess’ comments. Tesla stock is down about 1.5% over the past two days, but of course, it’s been on an incredible run since the company reported strong third-quarter numbers.
Write to Al Root at firstname.lastname@example.org