Germans against Musk: can Volkswagen beat Tesla

This week, Volkswagen has made a name for itself with money-backed ambitions to catch up and overtake Tesla. In reality, we are talking about gaining a foothold in the status of the main competitor, but this should give investors a reason to think about who to bet on in the upcoming electric car war.

What's happening

On Wednesday, March 17, Volkswagen became Germany's most valuable company, outperforming enterprise software maker SAP, and on Thursday the automaker's quotes continued to rise. Since the beginning of the week, its capitalization has grown by 25%, to 136 billion euros.

Volkswagen last topped the German DAX index (which hit an all-time high in the automaker rally on Thursday) six years ago, before Dieselgate.

What's the matter

Investors continued to react to VW CEO Herbert Diess's breakthrough plan for the development of electric vehicles directly directed against Tesla. Bloomberg called it "the most ambitious and drastic" of anything traditional automakers have ever attempted. The company intends to:

Double the production of electric vehicles in 2021 to 1 million (about the same as Tesla plans to sell this year). By 2025, become the world leader in sales with 2 million electric vehicles.
From 2023, start the transition to our own single battery cell. Reduce the price of the battery by 30-50%, which will make the cost of an electric car lower than that of a car.
From 2025, start producing such elements at a gigafactory in Germany, by 2030, produce 240 GWh of cells per year at six gigafactories in Europe. At the rate of 100 kWh per battery, this will give 2.4 million electric vehicles per year, excluding third-party supplies.
By 2025, expand the network of fast charging stations in Europe by five times, and rapidly develop them in the US and China. Reduce charging time for 450 km to 12 minutes.
By 2030, bring sales of electric vehicles in Europe to 60% of total sales.

Does Volkswagen have a chance against Tesla?

Analysts at UBS (report quoted by CNN) believe there is. This is supported by the company's experience and the planned giant - 35 billion euros - investments in "electric" development, including software components and autopilot. According to their calculations, already in 2022 the German company will equal the sales of electric vehicles with the American one, and by 2025 it will be ahead of it by 300,000 (2.6 million versus 2.3 million).

It is also important that VW finally has worthy competitors to Tesla models technically and in terms of user experience, analysts say. These are the Volkswagen ID.3 electric car, sold in 2020 in the amount of 56,500 units, and the new ID.4.

UBS pointed out that investors were underestimating the speed at which VW was catching up with Tesla and raised its price target for the German company's stock by 50%.

What's next?

Volkswagen's success in the fight against Tesla will depend on how much VW can learn from and improve on any competitor's achievements and become as similar as possible to it. This looks paradoxical, but is actually typical in markets where there is a winning strategy. A direct analogy in the form of Apple, Samsung and the smartphone market just begs, and Bloomberg pointed it out right in the title of his article - "If Tesla is the Apple of electric cars, Volkswagen is fighting for Samsung's place."

It looks like Volkswagen is fully aware of this. Observers point out that even Diss's presentation was tailored according to the canons of Musk, the stages of VW's battery evolution seem to be written off from Tesla (and the gigafactories are written off directly). Over-the-air software updates, as in Tesla models, will be rolled out to the ID.3 by summer. There is also an area where VW has an important advantage over its competitor - promising solid-state batteries . A direct analogue of Apple and Samsung in the latter's OLED screen technology.

While Tesla is stronger than VW in the field of software and autopilot, recognizes UBS. They account for about two-thirds, or $400 billion of Tesla's capitalization (now $655 billion versus 136 billion euros for VW). But, given the drive of the competitor, the issue of Musk's overvaluation will again come to the fore. In 2020, Tesla produced 500,000 electric vehicles, while Volkswagen produced 231,600 and another 9 million gasoline vehicles. In 2020, Tesla's revenue was just 12% of VW's (with cars), and the profit was $721 million versus 10.6 billion euros.