On Thursday, Bernstein analysts adjusted their outlook on shares of Volkswagen AG (ETR:VOWG) (VOW:GR) (OTC: OTC:VWAGY), reducing the price target from EUR 105.00 to EUR 102.00, while maintaining a Market Perform rating on the stock.
The revision reflects concerns over potential impacts of tariff escalations on the German automaker, which currently trades at a notably low P/E ratio of 3.89. According to InvestingPro analysis, the company appears undervalued with its $49 billion market capitalization.
According to Bernstein, Volkswagen (ETR:VOWG_p) could be the most affected among German Original Equipment Manufacturers (OEMs) if there were to be an increase in tariffs. The analysis points out that while Volkswagen generates roughly 20% of its global car revenues from the United States within its $361.3 billion annual revenue base, a significant 75% of these revenues are from imports, which translates to a 15% exposure to the U.S. market.
Moreover, Volkswagen relies on imports of engines from Mexico and Europe, which could be subject to tariff changes, potentially impacting its already modest 17.28% gross profit margin.
Volkswagen's position is further complicated by the fact that it exports very little from the U.S., meaning it does not gain from any potential tariff reductions. The company's exposure to the United States-Mexico-Canada Agreement (USMCA) is also highlighted as a critical factor, considering that around 40% of its U.S. volumes are imported from Mexico.
Looking ahead, Volkswagen's plans to launch the Scout BEV-SUV brand in the U.S. in 2027 could face challenges from the competition. The analyst noted that if Stellantis (NYSE:STLA), which owns the Jeep brand, were to implement price cuts leading to lower pricing in the U.S. market, it could negatively affect the prospects for Volkswagen's Scout brand.
Despite these challenges, the company maintains a substantial 6.63% dividend yield. For deeper insights into Volkswagen's competitive position and financial outlook, InvestingPro subscribers can access exclusive analysis and 10 additional ProTips.
In other recent news, Volkswagen AG (VWAGY) has been faced with a series of developments. The company reported a slight increase in revenue for the first nine months of 2024, but a significant drop in profits. Volkswagen delivered 6.5 million vehicles, marking a 3% decline year-over-year, with a notable 10% decrease in China.
Despite a robust order intake in Western Europe, profits were impacted by restructuring charges, particularly at the Audi Brussels plant, and a decline in the profit after tax by 31% to €8.9 billion.
RBC Capital downgraded Volkswagen from Outperform to Sector Perform, adjusting the price target to €100.00 from the previous €102.00. This revision reflects the analyst's projections of the automotive company's earnings before interest and taxes (EBIT) margins aligning with the full-year guidance of 5.6%.
Furthermore, Volkswagen's Indian subsidiary has been served with a tax evasion notice by Indian authorities, alleging the company dodged approximately $1.4 billion in import taxes. The accusation centers on the importation of car components for brands such as Audi, VW, and Skoda, which instead of being taxed at the full rate for complete cars, were reportedly declared as individual parts to attract a lower duty.
In another development, Barclays (LON:BARC) reaffirmed its Overweight rating on shares of Volkswagen with a steady price target of EUR100.00. The firm's analysis follows recent developments within the company, indicating a strategic move that could bolster Volkswagen's financial targets.
Lastly, Chuck Browning, a significant figure in the United Auto Workers (UAW) union who has negotiated various agreements with Ford Motor (NYSE:F), is set to retire, as reported by three Reuters sources familiar with the situation.
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