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Volkswagen's Electric Offensive Is Paying Off

Europe's top EV seller has its sights set on China and the US

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Dec 01, 2021
Summary
  • Volkswagen began its 'electric offensive' in 2018 with a commitment to invest $50 billion in EV development.
  • VW's efforts have paid off in Europe, where it is now the top EV seller by a significant margin.
  • VW has global ambitions - it has pushed aggressively into China and is making some progress in the US.
  • If VW can maintain its growth trajectory, it could become the world's top EV maker within a few short years.
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In 2018, Volkswagen AG (

XSWX:VW, Financial) revealed its electric vehicle strategy to the world. The renowned German automaker pledged to invest $50 billion over just five years as part of an “electric offensive” that aimed to vault it into a leading position in the global EV industry.

While many investors and commentators were immediately enthusiastic about the prospect of VW pushing aggressively into EVs, not everyone was convinced. Other automakers had made similarly grandiose promises only to stumble. VW would have to prove the doubters wrong.

Three years on, few doubters remain.

Taking the lead in Europe

The initial focus of VW’s EV ambitions has been the European market. This makes perfect sense strategically, since Europe is not only the world’s most sophisticated EV market, but also VW’s home turf. Thus far, homefield advantage has paid off for the company.

The first year in which VW saw meaningful EV sales was in 2019, when it delivered 45,850 fully electric cars in Europe. That was only good enough for third place in the European EV market, coming in well behind first-place Tesla Inc. (

TSLA, Financial), which sold 96,492 vehicles, and the Renault-Nissan-Mitsubishi Alliance, which sold 70,778 EVs.

VW’s days as a follower were short-lived, however. The very next year, it managed to sell 165,362 EVs, representing a more than 300% increase from 2019 and good enough for the top spot on Europe’s EV sales chart for the year. And VW has not stopped there. In the first three quarters of 2021, VW has already surpassed its 2020 total, with more than 168,000 EVs sold through September. Sales have remained strong in the fourth quarter, with year-to-date sales now approaching 200,000.

In terms of EV market share, VW has grown markedly in just a few years. From a meager 14.6% in 2019, it now represents more than 25% of European EV sales.

Global plans still a work in progress

VW’s strategy has won it a commanding position in Europe’s EV market, but the company’s ambitions stretch far beyond its continental heartland. VW has made it clear that it intends to replicate its success in EV markets worldwide. VW Group sales chief Christian Dahlheim said as much in October:

“Our global electric offensive continues to run at full speed. We are clearly the number one for all-electric vehicles in Europe, and number two in the USA. In China, we really took off in the third quarter, with deliveries of BEVs almost 60 percent higher than in the entire first half of the year. The strong demand for our global target for the year of one million electrified vehicles (BEVs+PHEVs) is definitely there.”

In China, VW commenced production early this year of two EV models at its domestic factories, with initial annual production capacity set at 600,000 vehicles per year. Sales initially proved slow, but have been ramping up in the second half of the year. Monthly sales have risen substantially, climbing from just 3,415 sales in June to 10,126 in September. From the start of the year through September, VW’s total EV sales in China stood at 28,900. in 2021 If recent sales growth can continue apace, VW should soon be able to expect sales levels comparable to those it has managed in Europe to date.

The U.S. market has been a somewhat tougher nut to crack, and remains dominated by Tesla, but VW is making progress. It is the undeniable runner-up in the American market, but the company seems determined to take first position there as well. It will have to do quite a bit of work to get there, however.

My take

VW’s EV business is clearly on a trajectory of rapid growth, a fact that has helped buoy its stock significantly this year. However, it has yet to receive anything like the valuations of other EV market players. If VW can keep up its EV growth, it might begin to convince the market to revise its opinion. If so, it could well be undervalued even at its current buoyant level.

Disclosure: Author is short Tesla.

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I am/we are Short TSLA
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