The EV race has been making headlines for years even though the race was dominated by one company. A fun roadster without a roaring engine. A 1,020 horsepower plaid beast that could go 0–60 mph in 2.07 seconds. A CEO who smoked weed and rushed into a hostile Twitter takeover. But this article isn’t about Tesla.
The debate on which legacy automaker will be able to catch up and compete with Tesla has raged on through the turbulent COVID era. It will probably continue to rage for business cycles to come. In the meantime, let’s look at the data.
The two largest auto manufacturers are Toyota (TM) and Volkswagen (VOW / VOW3). Toyota claimed the title of the largest automaker by sales in 2008. In 2016 Volkswagen took that title, before losing it due to the Volkswagen emissions scandal aka Dieselgate. (Volkswagen briefly held the title of the largest company in the world by market capitalization in 2008 due to hedge funds covering their short position causing a short squeeze.)
Interest in these brands shows a divided world.
Recently published corporate results show a similar trend. Volkswagen and Toyota had very similar worldwide sales with Volkswagen slightly ahead up until the 2020 lockdowns. Toyota seems to have fared slightly during the pandemic shock and Volkswagen doesn’t yet show signs of recovery.
As important as sales are, we must also consider overall profits and investments in future sales.
Earnings per share shows a very different reality. Volkswagen has been increasing their profits over the years, and while they suffered during the 2020 shock to below 2017 levels, Volkswagen improved their profits in 2021. Toyota on the other hand has maintained incredibly stable earnings per share over the timeframe, with no growth of profits but no shocks either.
Cash flow shows yet another angle of how these two companies are managed differently.
The companies’ free cash flow shows that both companies are moving along the same trends, but Toyota has kept their cash flow positive most years except during the 2020 shock, while Volkswagen has had negative cash flow for most of the 2016 to 2022 period but had positive cash flow during the 2020 shock.
Even though Toyota has a headstart with electric vehicles (EVs), Toyota management has made clear they don’t want to rely on a single powertrain such as EV or combustion, but want to provide a selection that may also include hydrogen and e-fuel motors. Volkswagen on the other hand has made strides towards improving their EV lineup. The automotive industry is in upheaval and Tesla has made clear it wants to take the crown of largest automaker. The investments made now may decide which auto companies will survive the next few decades. The divergence in stock performance only complicates the choice for investors regarding where to invest. With Toyota’s stock price double what it was 5 years ago, and Volkswagen’s stock down 34% from where it was 5 years ago, investors will need to think long and hard about which company strategy will prove most successful in the long run.
The bigger questions might be:
- Will Toyota’s business model of a plethora of powertrains beat the companies that are focused on one dominant technology?
- If so, the currently high stock price (100% above – aka double – the pre-pandemic average of 1350 JPY) is warranted.
- Will the German juggernaut steamroll its way to the top?
- If so, the current drop in stock price (30% below the pre-pandemic average of 150 EUR) is a great bargain.
- Which is the better buy?
- Time will tell.
Here at Salty Analysis, TM is currently rated as a Buy.
Here at Salty Analysis, VOW3 is currently rated as a Buy.
[All information posted on this site is for informational purposes only. It is not intended to be investment advice.]
[ Disclosure: The author of this post may have a beneficial long position in the shares of VOW3 or TM either through stock ownership, options, or other derivatives. The author wrote this article themself, and it expresses their own opinions. They are not receiving compensation for it (other than from the Salty Analysis company). The author has no business relationship with any company whose stock is mentioned in this article. ]
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