Volkswagen subsequently admitted that it had conspired to violate the US Clean Air Act and paid a $US4.3 billion fine. Several senior executives were sentenced to prison and former Volkswagen Chief Executive Officer Martin Winterkorn and six other Volkswagen executives were eventually criminally charged by German prosecutors.
The time of the traditional car manufacturers is over
Volkswagen CEO Herbert Diess
Volkswagen still is beloved by industry analysts, 86 per cent of whom favour the German automaker with a “buy” recommendation, according to data compiled by Bloomberg. Volkswagen now wants to emulate Tesla and recently raised its battery electric production target to 1.5 million vehicles in 2025. Tesla sold a record 367,500 vehicles in 2019.
“The time of the traditional car manufacturers is over,” said CEO Herbert Diess in prepared remarks at an internal Volkswagen meeting this month. “The magnitude of our task and the brevity of time” necessitated by Tesla’s challenge “gives us exactly one single try,” he said.
Diess, who was a member of the management board at Bayerische Motoren Werke AG before he joined Volkswagen as chairman and CEO in 2015, should know. As recently as 2013, Volkswagen’s $US109 billion valuation was seven times more than Tesla’s. By 2015, the gap had narrowed to $US22 billion and was just $US10 billion after the first week of January. During this period, the average 5-year and 3-year returns (income plus appreciation) for the 10 largest automakers were 30 per cent and 28 per cent, respectively. Volkswagen investors suffered by comparison with a loss of 4 per cent and a gain of 20 per cent. Tesla shareholders crushed the industry, earning 181 per cent and 120 per cent, according to data compiled by Bloomberg.
Yet too few analysts agree with Diess’s assessment.
The Bloomberg Recommendation Consensus shows that the appraisal of Tesla by 36 analysts, measured on a scale of 1 to 5 (the most bullish), has fallen 37 per cent from 4.1 in 2015 to 2.57 when the comparable measure for the Russell 3000 is 4.05. Bloomberg ranks the performance of analysts by calculating the total return of their buy and sell recommendations. The top 10 analysts have a target price for Tesla of $US454 a share. The bottom 10 have a target of $US397 a share.
Ryan Brinkman, the automotive equity research analyst for JPMorgan Chase Bank, is among the biggest Tesla bears, with a target price of $US240 a share and a sell rating for the next 12 months. He has issued 28 consecutive sell recommendations since February 2015; Tesla has appreciated 178 per cent since then. During the preceding three years, he initiated 14 “neutral” or hold ratings in a row as the shares were climbing 487 per cent, according to data compiled by Bloomberg.
Colin Rusch, a top-10 performer in the group and the Oppenheimer & Co. analyst who is most bullish on Tesla, said on January 13 that the shares were worth $US612, a 59 per cent increase from his $US385 target price published January 3. He said the company was a buy on August 2, 2018 and rated the shares a buy even when they lost almost 50 per cent between August 2018 and June 2019. Tesla shareholders who followed Rusch’s buy and sell suggestions throughout the past 12 months made 90 per cent, according to data compiled by Bloomberg.
Investors who followed his advice on the 26 stocks he covers reaped a total return of 41 per cent as against the 16 per cent return that would have gone to followers of his top 10 peer group. More than half of Rusch’s companies are committed to clean energy rather than being traditional auto stocks.
As for Tesla, Rusch is the lonely analyst who agrees with Volkswagen’s Diess. “While Tesla has stumbled through growing pains, we believe the company has reached critical scale sufficient to support sustainable positive free cash flow,” Rusch wrote earlier this month.
That’s another way of saying that the best for Tesla is yet to come.