Volkswagen In The Midst Of Transformation, Reinvention, Crisis, And Opportunity

seekingalpha2021-03-23

Summary The latest Annual Media Conference and VW's power day gave me a boost in confidence in the company's future prospects. VW's CEO Herbert Diess talks about VW's transformation, but I would like...

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Comments

Ericlam
2021-03-24
Ericlam
Need to transform fast,follows the trend.Go EV
StansenSG
2021-03-24
StansenSG
Please like and comment. Thanks
- Jon000:
  Ok
- capsulefong:
  Great
pinghu
2021-03-24
pinghu
??
RonnieSG
2021-03-24
RonnieSG
Good analysis. VW will need a tough decision on how to abandon their ICE car line while going for the EV market. This is the decisive factor for all traditional car manufacturers.
Limth
2021-03-24
Limth
Another good ev in the making
- xJimmy:
  yes
- YK_:
  Yes
- pinghu:
  Yes

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the other is sales, marketing and the product portfolio that needs to be trimmed down and streamlined.\nVW's iconic brands are its biggest leverage.\n\nPhoto by Sean Gallup/Getty Images News via Getty Images\nIntroduction\nVolkswagen (OTCPK:VWAGY)(OTCPK:VLKAF)goes all-in on electric and, more importantly, electric infrastructure. I've been long Volkswagen for a year and got a hefty return of over 100%.\nSource: TradingView.com\nAfter the Power Day event on the 15th of March, investors' excitement got the better of them, and the share price skyrocketed. I covered my Volkswagen stocks by buying shorts, which was a good decision in hindsight.\nIf Volkswagen can stay on its trajectory and return on its promises, I see Volkswagen's future in the EV space. The EV aspect and its infrastructure were and are only part of the problem. Volkswagen needs to transform and maybe even completely reinvent itself from the sales & marketing perspective.\nI'm bullish on the stock and maintain an eye on their promises and how they plan to \"transform\" the rest of the business apart from the electric part.\nVolkswagen Promises\nVolkswagentransforms into a technology company. They outlined the transformation in various sources with specific milestones.\n\nMajor EV charging infrastructure in Europe, Asia, and the US (2030)\n240 GWh Lithium secured battery supply (2030)\nProduce the majority of software in-house with 10,000 software developers (2026)\nCreate software-enabled cars (2025)\nStop producing gas- & diesel-engine vehicles (2026)\nStreamline product offerings and focus on customer needs (2025)\n\nThe strategy is clear. Create an ecosystem around Volkswagen and its EV fleet to attract customers and enable effortless Europe-wide travel with VW cars.\nTrading Places Research published a piece about Volkswagen battery efforts and Power Day. They discuss in-depth about Volkswagen aimed at battery goals, obstacles and compare with competitors in the market. I recommend reading that article for a full understanding.\nVolkswagen made the right step by modulizing and standardizing its battery designs all over its fleets and brands. That will help using economies of scale and standard design principles for the engineers at VW and its brands.\nCurrently, Volkswagen relies heavily on partners for its battery factories and charging infrastructure. Relying on partners for these critical infrastructure improvements can be interpreted as a sign of weakness. Down the line, it could negatively affect the infrastructures performance, differing standards, or inefficiencies for Volkswagen's own cars. VW's partners have their own profits in mind and will build the infrastructure to accommodate all EV manufacturers.\nTesla (TSLA) relies on itself for its infrastructure, and aligns it perfectly with its cars.\nVolkswagen invests heavily in in-house software.Long overdue, but not too late. The fundamental difference between combustion engines(CE)and electric vehicles is the degree of control and supervision one has over the engine. Each electrical vehicle aspect has an electrical source and can be tightly controlled, which is where Volkswagen has to catch up to Tesla.\nUnnecessary performance is lost if the software for electric vehicles is outsourced.\nSource: Manufacturers' Websites\nTesla has built everything around electric vehicles. Its engineers, factories, technologies, ideologies, its people, management. Everything is about electric vehicles. That's one reason why they outperform VW by such a wide margin.\nAnother reason is that VW is just a whole other beast from another era that needs to reinvent itself.\nVW can catch up to Tesla (but not overtake, which should not be VW's goal), and it's doing the first steps to do so. By pulling the software capabilities in-house, they can align software and hardware.\nVolkswagen's Leverage\nVolkswagen's leverage is not as big as it seems to be. Its transformation resembles a complete reinvention of its business and strategy due to EV and CE's very different natures.\nAdditionally to the technological transformation, we're also in the midst of a generational shift. Consumer taste and buying approach are changing dramatically. Volkswagen is not yet ready for this shift, and I don't see much emphasis on this topic.\nVolkswagen's leverage is its brands. VW, Audi, Porsche, Bentley, or Lamborghini. At this point, I would like to introduce my company graph and split VW into distinct parts and explain further.\nSource: Author\nWe cannot just look at VW the same way we look at Tesla. VW owns iconic brands that are profitable and didn't even budge during the pandemic.\nSource: VW Annual Report 2020\nThese brands are VW's golden goose. In my graph, I set them as iconic brands (green line). Porsche has operating margins of 15%. Audi, which includes Lamborghini, usually has operating margins of 8-10%. I guess that Lamborghini's operating margins are similar to those of Porsche's.\nThese are insanely high margins for cars, a statement for customers' brand awareness if we talk about these iconic brands. If a brand becomes iconic, it can ask for more as time goes by. The customer happily pays for the premium.\nIf VW can transform its business and set standards for its EV fleet and then apply the learnings from its core business to its other brands, they can apply the leverage at the right place and time.\nIn my graph above, I place VW's core business as transformative. VW is in the midst of its transformation, and I would not be surprised if we see more weak quarters or years before the transformation shows its effects. They have enough cash flow generating businesses to finance their transformation. It's now about the transformation itself and if VW's culture and its people can change.\nRisks\nThe transformation talks sound good, and I am certain that their strategy will bear fruit if executed well.\nIf it comes to an old-school car manufacturer like Volkswagen, we must include its culture and people into our risk analysis. These can be major transformational obstacles on the way. VW currently employs 662,000 people. The combustion engine, its components, and sales and marketing require such a huge workforce to establish VW's global car leadership.\nWith the transformation, VW needs to articulate how they want to transform the workforce and its culture. VW's annual report discusses the company's realignment components business (with 75k employees) into an independent corporate entity. Overall, they fail to address the cultural aspect of the transformation.\nSales & Marketing Risk and Opportunity\nDid you ever go on Volkswagen's website to get some information about a car and potentially buy it from the website? It's a horrible experience and shows exactly where Volkswagen is stuck.\nSource: Volkswagen Sales Website\nI checked on VW's new all-electric ID.4. It has a total of 9 different editions. The ID.4 Pure, City, Style, Pro, Life, Business, Family, Tech, Max. In the table above, you can see the differences.\nI don't have the tenacity to understand this whole system... Just a horrible experience for a buyer, especially over the internet.\nTheir marketing is equally obscure. I went through their website and wanted to check the ranges of their electric vehicles. I had to dig deep into the models' technical details to find the most important data - the range. I find many prizes, trophies, and emphasis on small details like \"intelligent light.\" In my opinion, these things are boasted out of proportion and hide critical information.\nThere are so many variations in interior design, add-ons, add-offs, and add-inbetweens. It overwhelms me to the point where I would flee towards the simplicity of Tesla's shopping experience. This system is a relic and certainly feels that way.\nTesla's shopping experience is so streamlined, easy, and comfortable. VW can definitely learn a thing or two.\nOutlook\nVW initiated its transformation. The Power Day and recent annual meeting gave me confidence that they are on the right trajectory.\nVW has a strong core business where it initiates the transformation. They can then use their learnings from their core business and use their brands as leverage to transform the rest of their business.\nThe biggest concerns I have are the cultural aspects of the transformation, management, sales, and marketing. Transforming the old combustion engine-focused business to an EV-focused one will certainly cut deep in employee's comfort zone. Transformation starts with the people, and this could be an obstacle that VW needs to articulate.\nAlso, VW's online shop's user experience is just horrible, and their marketing is rather confusing than helpful. These are problems, but also great opportunities if VW addresses them.\nI'm bullish on the stock with a time-horizon of 5 years.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":351017275,"gmtCreate":1616545754897,"gmtModify":1704795433643,"author":{"id":"3559787818034959","authorId":"3559787818034959","name":"Ericlam","avatar":"https://static.tigerbbs.com/f2154f4bb8afd22f8e6fde60b57acb69","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":7,"crmLevelSwitch":1},"htmlText":"Need to transform fast,follows the trend.Go EV","listText":"Need to transform fast,follows the trend.Go EV","text":"Need to transform fast,follows the trend.Go EV","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/351017275","repostId":1152387358,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":351094349,"gmtCreate":1616544326981,"gmtModify":1704795406020,"author":{"id":"3578711428062414","authorId":"3578711428062414","name":"StansenSG","avatar":"https://static.tigerbbs.com/103164c3fe87bb229920af5f907dbf60","vip":1,"crmLevel":5,"crmLevelSwitch":0},"htmlText":"Please like and comment. Thanks","listText":"Please like and comment. Thanks","text":"Please like and comment. Thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/351094349","repostId":1152387358,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":3866515,"gmtCreate":1616545049629,"gmtModify":1680781468220,"authorId":3574488501440064,"author":{"id":3574488501440064,"authorId":3574488501440064,"name":"Jon000","avatar":"https://static.tigerbbs.com/31d8b0b435484918436ab24cf32410e7","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":351094349,"type":1,"supId":0,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"},{"id":3866501,"gmtCreate":1616544960746,"gmtModify":1680781467033,"authorId":3576880831453882,"author":{"id":3576880831453882,"authorId":3576880831453882,"name":"capsulefong","avatar":"https://static.tigerbbs.com/25f18e70d07b538bd6b81cf112a09cde","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":351094349,"type":1,"supId":0,"prevId":0,"content":"<u>Great</u>","text":"<u>Great</u>","html":"<u>Great</u>"}],"langContent":"EN"},{"id":351096400,"gmtCreate":1616544035900,"gmtModify":1704795403258,"author":{"id":"3577496233814703","authorId":"3577496233814703","name":"pinghu","avatar":"https://static.tigerbbs.com/42c1937c871b61f4912f7e80672da554","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"??","listText":"??","text":"??","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/351096400","repostId":1152387358,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":351098354,"gmtCreate":1616543927678,"gmtModify":1704795401157,"author":{"id":"3567295126071659","authorId":"3567295126071659","name":"RonnieSG","avatar":"https://static.tigerbbs.com/20c3815bb0969cd4ea7a26f56e53df31","vip":1,"crmLevel":6,"crmLevelSwitch":1},"htmlText":"Good analysis. VW will need a tough decision on how to abandon their ICE car line while going for the EV market. This is the decisive factor for all traditional car manufacturers.","listText":"Good analysis. VW will need a tough decision on how to abandon their ICE car line while going for the EV market. This is the decisive factor for all traditional car manufacturers.","text":"Good analysis. VW will need a tough decision on how to abandon their ICE car line while going for the EV market. This is the decisive factor for all traditional car manufacturers.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/351098354","repostId":1152387358,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":353778581,"gmtCreate":1616542677943,"gmtModify":1704795375775,"author":{"id":"3565147372726492","authorId":"3565147372726492","name":"Limth","avatar":"https://static.tigerbbs.com/a3e8250fe16c4e0e90561c3755568eae","vip":1,"hat":"https://static.tigerbbs.com/a3dee1aa3a3a3c1814833a4d3f8a5669","crmLevel":7,"crmLevelSwitch":0},"htmlText":"Another good ev in the making","listText":"Another good ev in the making","text":"Another good ev in the making","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":3,"repostSize":0,"link":"https://ttm.financial/post/353778581","repostId":1152387358,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":3866262,"gmtCreate":1616543490974,"gmtModify":1680781472934,"authorId":3570511255316785,"author":{"id":3570511255316785,"authorId":3570511255316785,"name":"xJimmy","avatar":"https://static.tigerbbs.com/b24d4b1856cd8d6958f25fff0e8a85b6","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":353778581,"type":1,"supId":0,"prevId":0,"content":"yes","text":"yes","html":"yes"},{"id":3866279,"gmtCreate":1616543550842,"gmtModify":1680781469472,"authorId":3553019324478704,"author":{"id":3553019324478704,"authorId":3553019324478704,"name":"YK_","avatar":"https://static.tigerbbs.com/c497ab9769b763ccb8f8945a2a1cf610","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":353778581,"type":1,"supId":0,"prevId":0,"content":"Yes","text":"Yes","html":"Yes"},{"id":3866370,"gmtCreate":1616544060353,"gmtModify":1680781466306,"authorId":3577496233814703,"author":{"id":3577496233814703,"authorId":3577496233814703,"name":"pinghu","avatar":"https://static.tigerbbs.com/42c1937c871b61f4912f7e80672da554","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":353778581,"type":1,"supId":3866262,"prevId":0,"content":"Yes","text":"Yes","html":"Yes"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":68,"commentSize":17,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1152387358"}