ii view: how Volkswagen will spend €180bn in next five years

Having fallen by 43% in 2022, shares in this automotive giant are in positive territory this year. We assess prospects. 

Full-year results to 31 December

• Revenue up 11.6% to €279.2 billion
• Adjusted operating profit up 13% to €22.5 billion
• Final dividend up 16% to €8.70 per share

Chief executive Oliver Blume said:

“FY22 was an important year for the Volkswagen Group. We made headway on executing our strategy, despite extreme headwinds. Battery Electric Vehicles accounted for a record 7% share of total deliveries – a significant milestone that we will build upon this year as our popular model range continues to grow.”

ii round-up:

German automotive giant Volkswagen AG (XETRA:VOW) today cranked up its five-year spending plans on areas such as battery vehicles and software as it further detailed annual results announced only recently. 

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Spending up to 2027 is being increased to €180 billion from €159 billion previously as it looks to boost the most attractive profit areas and regions, with more than two-thirds going towards electrification and digitalisation.  

Volkswagen shares fell by 3% in European trading having come into this latest announcement up by around 14% year-to-date. That’s similar to rival Mercedes-Benz Group AG (XETRA:MBG) but below a 40% plus rise for US electric car maker Tesla Inc (NASDAQ:TSLA) following its announcement of vehicle price cuts in late 2022. 

Full-year 2022 deliveries at VW declined 7% to 8.3 million vehicles as it continued to battle supply chain constraints, particularly in semiconductors.

Electric vehicle deliveries however rose 26% to 572,100 units, helping push adjusted operating profit up 13% from 2021 to €22.5 billion.

Management expects total 2023 deliveries to rise to about 9.5 million vehicles, resulting in an expected 10% to 15% increase in full-year revenues. 

A final dividend of €8.70 per share is an increase of €1.20 from 2021 and equates to a pay-out ratio of almost 30% of earnings. 

VW also announced that its first battery manufacturing plant outside of Europe is to be built in Canada, with production expected to start in 2027. 

A first-quarter trading update is scheduled for 4 May.    

ii view:

Started in 1937 and headquartered in Wolfsburg, Germany, Volkswagen today operates across the two divisions of automotive and financial services. Its vehicles range from motorcycles to supercars and heavy trucks. Group brands include VW itself, Audi, Skoda, Seat, Cupra, Lamborghini, Scania and Ducati. It also retains a majority shareholding in the now stock market listed Porsche Automobil Holding SE Vorz-Inhaber-Akt stimmrechtslos (XETRA:PAH3). 

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For investors, the highly uncertain economic outlook including a cost-of-living crisis for consumers cannot be ignored. Costs for businesses generally remain elevated, supply chain challenges have continued, while rivals such as Tesla, Ford Motor Co (NYSE:F) and General Motors Co (NYSE:GM) are investing aggressively. 

More favourably, moves to ramp-up VW's electric vehicle production are being made, the diversity of its brands helps even out the ups and downs of each one, while investment in new models and production facilities is ongoing. A forecast dividend yield of around 4.5% is also attractive.

On balance, and given the strength of its brands, this global automaker will certainly be in the mix for investors wanting exposure to the global automotive industry.  

Positives: 

• Strong brand names including Audi and Volkswagen
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Supply chain challenges

The average rating of stock market analysts:

Buy