Volkswagen has been quietly moving along closing the gap with Tesla as the leading maker of electric cars. VW is in a solid place behind Tesla on EVs and making progress on battery production, charging infrastructure and software, Chief Executive Officer Herbert Diess said Wednesday at a tech conference in Berlin. In Europe we have already seen Tesla go from number one at 33% EV market share in 1919 to just 10% market share and 5th place. However, VW had a 47% EV sales growth from 2020 – 2021 while Tesla saw 77% growth in that same period.
“We think we can close the gap a little bit in the next months,” he said. Europe’s biggest automaker could overtake its US rival as soon as 2024, Bloomberg Intelligence analysts predicted last week.
VW Chief Executive Officer Herbert Diess
Tesla today has a clear lead at the moment, VW is aiming for 2024. Significantly VW brand will have EVs across different market segments with VW, Porsche and Audi branding. This gives a wider target audience given price points for different demographics. This lets them play in the mass market EV market, performance EV, and luxury EV markets. Tesla is really an everyman EV but priced in the high end market without the torque and prestige of Porsche or the renowned quality of Audi.
Elon Musk disputed VW’s aims this Tuesday during the Qatar Economic Forum, telling Bloomberg News Editor-in-Chief John Micklethwait that he “would not agree” with the forecast. He instead praised Chinese carmakers before saying that at Tesla, “we don’t really think about other competitors.”
Musk though has acknowledged VW is rapidly electrifying and has praised Diess for doing so. He’s clearly paying close attention, as much as he says he is not.
Tesla delivered more than 936,000 EVs worldwide last year, while VW sold some 453,000 fully electric cars. Impressive really when you consider VW waited to enter the market until they believed they had the car worthy of the quality Audi and Porche are expected to bring. Musk is relentless in ramping up with new factories this year in Austin, Texas, and near Berlin and Tesla is on track to produce more than 1.5 million vehicles this year, Musk said in April.
However, all that said on Saturday Tesla announced its sales from April through June fell to their lowest quarterly level since last fall. Musk just last week described new factories in Austin and Berlin as “money furnaces” that were losing billions of dollars because supply chain breakdowns were limiting the number of cars they can produce. Wedbush analyst Dan Ives estimates that more than 40% of Tesla’s sales come from China, and that the Shanghai factory produced about 70,000 fewer vehicles due to the shutdowns.
On Saturday the company announced it sold over than 254,000 cars and SUVs from April through June, an 18% drop from last quarter and also well below the pace in last year’s final quarter. The last time Tesla sold fewer vehicles globally was in the third quarter of 2021 when it delivered 241,000.
VW has earmarked some $55 billion through 2026 to develop and produce electric cars. This includes setting up a new €2 billion EV factory in Germany and plans to build up six battery factories across Europe, several of which will involve partnerships. It’s also making a bold move to gain market share in the US, where it’s reviving the defunct brand Scout with rugged electric SUV and pickup models.
– Bloomberg
During the Qatar event, Musk detailed his decision to cut costs by dismissing about 10% of Tesla’s salaried employees over the next three months, or about 3.5% of its global workforce. VW and Tesla have also suffered from Covid-related lockdowns at their factories in China, but recent remarks from Musk and Diess suggest the situation is improving.
Wall Street still loves Tesla, even after the recent 35% plus rout, the US carmaker is valued at around $734 billion, more than eight times VW’s market capitalization. Though as we know being up to use that market cap to raise debt is one thing, there have been ‘market dribblers’ pushing it as inevitable that Tesla is buying VW in a takeover. The reality is the glaring instability of the world’s financial markets with interest rates soaring, global currency markets quivering as central banks aggressively tighten monetary policy to temper persistently hot inflation. There is that little Twitter matter also.
Private equity and venture capital deal volume fell to its lowest monthly totals in at least a year in May, with just under $53 billion in deals, which is down 30% from the year-ago period, according to S&P Global Market Intelligence. The total number of entries also fell nearly 18% year over year in May, to 1,652 from 2,005 for the same month in 2021.
Bloomberg reported over 70 deals have been postponed or canceled so far in 2022. Compare that with 37 during the full year of 2021, and 67 in 2020. This move is twofold the companies, used to cheap debt don’t want expensive debt. Banks for their part really don’t want the deals, given the difficulty of financing them and then selling them to investors.
Banks, after struggling for weeks to sell leveraged buyout debt on their books, are now charging so much to finance new LBOs that they are effectively cutting themselves out of transactions. Walgreens Boots Alliance Inc. is scrapping its potential sale of the Boots drugstore chain in the UK, in part because rising financing costs have cut into the prices that bidders were willing to pay.” June 28 – Bloomberg (Claire Ruckin)
Porsche Listing
VW is looking at a different approach to raise money, it has plans to list its Porsche unit in the fourth quarter, CFO Arno Antlitz told Bloomberg’s Elisabeth Behrmann on Wednesday at a Bloomberg-organized finance conference in Frankfurt.
The Porsche listing is poised to be one of Germany’s biggest-ever IPOs and could value the business at as much as €90 billion. Porsche is a highly profitable brand and is far along in its electric transformation, with its Taycan EV already outselling the legendary 911.
It’s a bold move, but perhaps it is a classic Porsche move given the IPO market has but died since markets collapsed in January since the war in Ukraine, rising interest rates and runaway inflation. Swiss firm ABB on Monday postponed the $750 million listing of its EV charging business until the market improves.
Bloomberg said Antlitz pitched Porsche as a safe haven for investors eager to sidestep the drop in tech and EV stocks, arguing the brand has proven resilient in the face of disruptions.
“There’s still capital out there and there’s a lot of skepticism about investing capital in technology companies, in new ventures,” he said. Porsche, on the other hand, “is very solid.”
Exciting times ahead for the two Electric Vehicle makers. Perhaps we have to wait for the supply crisis to come down given the skyrocketing prices pushing buyers out in a recession. In such a market the cheaper VW branding comes into play. The fall in auto sales was still not as large as the rest of the industry which reported a 21% drop in sales during the second quarter as the average price for vehicles skyrocketed to a record of $45,844 amid soaring inflation, according to J.D. Power. Next up we watch for when Tesla’s releases its earnings for the April-June period on July 20.