Overall, 2020 belonged to pure-play EV names. Tesla and NIO surged by more than 700 percent and 1,100 percent, respectively. However, the tide seems to be turning around in 2021. Legacy automakers who are venturing into EV space have run up significantly. Volkswagen stock has increased by more than 60 percent YTD. What is Volkswagen's stock forecast for 2021?
Volkswagen has increased its efforts in the EV space as it aims to become a global EV leader by 2025. Invariably, its efforts are now being compared to Tesla. Will Volkswagen be able to overtake Tesla in the EV space?
Why Volkswagen stock is rising
Volkswagen’s OTC stock is up an impressive 64 percent YTD. The rise is in contrast to the decline in stock prices of pure EV names like Tesla and NIO. Tesla stock has risen by just 8 percent, while NIO stock has fallen by 21 percent in the same period. Most of these gains came after Volkswagen held its Power Day on March 15. This seemed to have taken inspiration from Tesla’s Battery Day. The event gave a clear signal to the market that Volkswagen is accelerating fast for an EV transition.
Volkswagen’s EV strategy
During this event, Volkswagen said that it would allocate almost half of its investment budget of 150 billion euros on e-mobility, hybrid cars, software-based vehicle operating systems, and self-driving technologies. Last year, the company earmarked about 60 billion euros from a total investment budget of 150 billion euros on EV and self-driving vehicles. The higher re-allocation to EVs shows a clear priority shift in the company's EV strategy.
Volkswagen talked about building more facilities to make batteries and lower battery costs. The company intends to bring down its battery production costs to below $100 per kilowatt-hour. According to industry experts, at $100 per kWh of the battery pack, the price parity between an EV and ICE (internal combustion engine) can be reached. Tesla is also working to bring the cost of its batteries below this key level.
Tesla started installing superchargers for free charging. Volkswagen also plans to have 18,000 EV charging points in Europe by 2025. Volkswagen aims to become the global EV market leader by 2025. It's targeting a sale of 1 million EVs in 2021. Tesla aims to sell 1 million cars by 2022.
Volkswagen stock forecast
According to Market Beat, 16 Wall Street analysts currently cover Volkswagen. Among the analysts nine have a buy, six have a hold, and one has a sell rating for the stock. The average 12-month forward target price for the stock represents a potential downside of 8 percent.
According to The Fly, on March 29, Jefferies analyst Philippe Houchois upgraded Volkswagen to buy from hold with a target price of 295 euros, up from 185 euros. Houchois thinks Volkswagen can re-rate higher in an electric vehicle transition. He also admits underestimating Volkswagen management's “zeal for change.”
According to The Fly, on March 29, Jefferies analyst Philippe Houchois upgraded Volkswagen to Buy from Hold with a price target of 295 euros—up from 185 euros. Houchois thinks that Volkswagen can re-rate higher in an electric vehicle transition. He also admits underestimating Volkswagen management's “zeal for change.”
JP Morgan also raised VW’s target price from 215 euros to 255 euros on March 18 and kept the overweight rating. Morgan Stanley, Barclays, RBC Capital, and Société Générale also raised their respective target prices for VW after its Power Day event.
Volkswagen is a good stock to buy.
Invariably, any company venturing into the EV space is compared to Tesla. After Volkswagen's massive EV investment and a clear pivot towards EV-focused vehicles, many market participants are now seriously considering whether Volkswagen can give Tesla a run for its money. Volkswagen definitely holds an advantage compared to Tesla when it comes to scale. However, it's still far from calling the shots when it comes to battery technology and software development.
While Volkswagen might not catch up to Tesla in EV supremacy any time soon, it still seems like a good EV bet. It's cheap compared to Tesla and other pure-play EV names. Its NTM EV-to-EBITDA multiple is 8.6x, while General Motors' (GM) and Ford's NTM EV-to-EBITDA multiples are 7.4x and 14.7x, respectively. These multiples are just a fraction of Tesla's 67x.
While Volkswagen's multiple isn't expected to catch up to Tesla’s anytime soon, the recognition of its EV capabilities and potential by the market should help to re-rate its multiple much higher. Therefore, at the current prices, the stock seems like a good buy.