Tag: European Market

In our opinion, the market has been overly punitive in assessing technology spending and costs from the diesel emission scandal and the EC collusion charges. Even though the worst of the cheating scandal is over in the U.S., we maintain a EUR 20 billion reduction to our enterprise value for potential litigation in Europe. If we remove the EUR 20 billion EV haircut, our FVE would be EUR 280.

Our fair value includes margin contraction from higher spending for industry-disruptive technologies, including mobility, autonomy, and electrification. In 2018, VW achieved a 7.2% EBIT margin (excluding China JV equity income). The historical 10-year high is 7.4% (2017). We assume average EBIT margin of 6.1% during our five-year forecast, with a midcycle assumption of 4.9%, 120 basis points below the historical 10-year median of 6.1%.

Diesel collusion allegations: We estimate that if Volkswagen’s worst-case fine of EUR 23.6 billion were to be levied, our fair value would drop to EUR 188 from EUR 238. In this scenario, under current trading conditions, Volkswagen stock would be rated 3 stars, with the market at a 10% discount

Volkswagen AG manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific. The company operates in four segments: Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services. The Passenger Cars and Light Commercial Vehicles segment develops vehicles and engines, and light commercial vehicles; and produces and sells passenger cars and related parts. The Commercial Vehicles segment develops, produces, and sells trucks and buses; and offers parts and related services. The Power Engineering segment offers large-bore diesel engines, turbomachinery, special gear units, and propulsion components. The Financial Services segment provides dealer and customer financing, leasing, banking and insurance, fleet management, and mobility services. The company also offers motorcycles. It provides its products under the Volkswagen Passenger Cars, Audi, ŠKODA, SEAT, Bentley, Porsche, Volkswagen Commercial Vehicles, Scania, MAN, Lamborghini, Ducati, and Bugatti brands. Volkswagen AG was incorporated in 1937 and is based in Wolfsburg, Germany. Volkswagen AG operates as a subsidiary of Porsche Automobil Holding SE.

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