Could one imagine a worse combination of characteristics for a listed company? Probably not, and these are certainly not foreign to Volkswagen's shock announcement, which made the headlines again yesterday by reiterating its threats to close plants in Germany - where the automaker employs 300,000 people.
These plans are not new, but until now they have met with fierce resistance from the unions - supported by the state of Lower Saxony, which holds a fifth of the automaker's capital. Outside Germany, the retreat has already begun, with Volkswagen announcing earlier this summer that it was considering closing its Audi plant in Brussels.
The European automotive sector is on the brink of collapse. A quarter of volumes are linked to electric or hybrid vehicles, a category in which Volkswagen is lagging painfully behind. Worse still, within three years, Chinese competitors will dominate this category, with market shares that could exceed three-quarters.
In July, despite opposition from German carmakers - who, above all, did not want to jeopardize their main trading outlet - the European Union imposed sanctions against Chinese manufacturers. These sanctions are not only difficult to apply, but should in fact only serve to buy time, since those concerned have already indicated their intention to set up production capacity on the Old Continent in order to circumvent them. In the meantime, they leave Volkswagen, BMW and Daimler open to retaliation.
Oliver Blume cannot be accused of lacking a sense of urgency. Volkswagen's CEO, whose more consensual approach contrasts sharply with the feudal style of his predecessors, makes no secret of the critical situation in which the group finds itself. He also personally piloted the German automaker's strategic partnership with Rivian, applauded on both sides of the Atlantic.
The Piëch family controls 53% of Volkswagen's capital - ahead of Qatar and the state of Lower Saxony.For years, Volkswagen's market capitalization has probably been much lower than the real value of its various subsidiaries. Indeed, it's easy to argue that the stakes in Porsche, Traton and Lamborghini alone cover far more than the value of the consolidated whole.
In this scenario, the market assigns a zero or negative value to the automotive and two-wheeler subsidiaries - which bring together under one roof the eponymous brand, plus Audi, Skoda, Ducati et al. as well as the financing division, whose profitability may be modest, but whose twenty-year track record of growth and profitability is impeccable.
In fact, the vast majority of consolidated debt is associated with the activities of this financing division. The automotive division's liquidity is close to its all-time high. This is precisely what has earned the automaker a rather lenient credit rating.
MarketScreener's analysts point out that such "sum of the parts" reasoning, while elegant and often highly convincing, is neither new nor generally very relevant. Among European automakers, these discounts have been in place for so long that they have now become almost structural. At the time, we even tried our hand at this with BMW.
In any case, 2024 will be a complicated year for Volkswagen. Management forecasts already indicate that free cash flow will be halved compared to the previous year. Based on traditional earnings multiples, this makes the automaker the most discounted of its European peers.
Nevertheless, it's hard not to prefer Stellantis, valued at the same multiple, but better capitalized, exposed to North America rather than China, and certainly less constrained in its governance and major strategic choices.