2023-08-17 11:27:20 ET
Summary
- Volkswagen's BEV growth is falling behind other OEMs.
- VW Group only increased BEV and PHEV units by 10% from 2021 to 2022, while others had higher growth rates.
- Other OEMs, such as Stellantis, BMW, and Mercedes, have increased BEV sales at a faster rate than VW Group.
Introduction
My thesis is that Volkswagen (VWAGY) is not improving battery electric vehicle ("BEV") sales as quickly as other notable OEMs. As my May article says, VW Group's BEV growth through 1Q23 could have been better. We now have numbers through 2Q23 and they are still falling behind other OEMs in terms of the growth rate in transitioning to BEVs.
The Numbers
Per EV-Volumes , VW Group only increased BEV and plug-in hybrid electric vehicle ("PHEV") units by 10% from 2021 to 2022 while others had much higher growth rates:
A prescient Palladium Magazine article from February by Evan Zimmerman talks about BEV software challenges faced by VW Group and other legacy OEMs in Germany:
In a sense, BEVs are as much software as they are cars, but software is usually considered one of Germany's weaker areas. Indeed, Volkswagen's BEV program was delayed for years by faulty software and still launched with hundreds of bugs.
The Palladium Magazine article drills down on "core efficiency" in order to explain tech obstacles for VW Group:
Setting aside Tesla, which is in a league of its own when it comes to core efficiency, the best-performing manufacturers are American and East Asian; German manufacturers are completely at the bottom. BMW and Porsche are among the absolute worst in their weight class. Mercedes does better than the other German manufacturers but is still less efficient than Ford or Hyundai. It is staggering how absent German technology is in this mix.
Despite challenges with software and core efficiency, VW Group's half yearly report reveals they improved nicely on their 2021 to 2022 BEV/PHEV growth rate during the first half of 2023. Specifically, they sold 104,383 more BEVs in 1H23 than in 1H22:
321,600 all-electric delivered in 1H23 which was 104,383 units more than 1H22. Total share was 7.4% relative to 5.6%, respectively.
Despite VW Group having a respectable BEV growth rate from 1H22 to 1H23, other OEMs have higher growth rates from 4Q22 to 2Q23. The below shows Stellantis (STLA), BMW Group ( BMWYY ) and Mercedes (MBGAF) have all increased BEV sales at a much faster rate than VW Group since 4Q20. VW Group has dropped noticeably in the 2 most recent quarters since 4Q22 while others have not:
The new energy manufacturers retail list in the CPCA July 2023 Retail Sales Ranking Express shows that among the top 3 new energy OEMs in China, YTD sales are growing at a rate of 74.8% for BYD (BYDDF), 58% for Tesla ( TSLA ) and 98.9% for GAC Aion:
The growth rate above is 144.6% for the Li Auto Ideal but these aren't BEVs. The growth rate of 108.5% for Changan is impressive and I expect them to continue flourishing given their strategic cooperation agreement with Geely ( GELYY ). These other companies are killing VW Group in China and per a July article from The Economist, software challenges are a large part of the problem:
According to press reports, orders for the group's evs are between 30% and 70% below plans, depending on the marque. The firm still has to sort out its software problems: in May it again shook up the management team of Cariad, its digital unit. In China's fast-growing market for evs, the VW brand is an also-ran, with a market share of 2%.
A July Reuters article describes VW Group buying an interest in XPeng (XPEV). The investment amount is approximately $700 million which will give VW Group nearly a 5% stake in XPeng. The investment will help VW Group with respect to software and autonomy (emphasis added):
The Volkswagen brand will partner with XPeng Inc to produce two models targeting the middle-class segment which will carry the VW logo but feature XPeng know-how on software and autonomous driving , a win for the EV startup that is less than a decade old. The new models, to be rolled out from 2026, will plug a gap in Volkswagen's product lineup in China, where the market for so-called "new energy vehicles" has grown faster than expected and Volkswagen lags local competitors and Tesla.
In addition to general software challenges, VW Group is also behind with battery systems. An August MotorTrend article by Justin Banner reveals that VW Group is outsourcing the battery pack to Hyundai and the first wide scale use will likely be in 2026:
The Hyundai Mobis built BSA is more than just the battery pack for VWs upcoming next-generation EV. These assemblies will include the power storage component but also the battery management system, cooling and conditioning system, and other components that are required to keep the batteries operational and safe for many years.
Electrive reports that VW Group's battery agreement with Hyundai is likely for small vehicles built in Spain:
The supplier does not get more specific, but the location suggests which cars the batteries will be for. It's the range of small electric cars based on Volkswagen's MEB Entry platform, which the Group will build at the plants in Martorell (VW ID.2 and Cupra Raval) and Pamplona (VW ID.2 X and a Skoda offshoot) starting in 2025.
Forward-looking investors should keep watching developments with software and battery packs. We need to monitor developments with XPeng to see how many more VW Group BEVs end up being sold as a result of the partnership. Investors should think independently and look at numbers from both optimistic and pessimistic sources, being wary of forecasts. After all, it wasn't long ago in June 2022 when Bloomberg came out with a forecast for VW Group that relied too heavily on optimism:
Disclaimer: Any material in this article should not be relied on as a formal investment recommendation. Never buy a stock without doing your own thorough research.
For further details see:
Volkswagen: Improving BEV Sales But Others Are Growing Faster