Inside Volkswagen: EV bets and macro pressures pay a heavy toll

The rubber is hitting the road for Volkswagen (OTCPK:VLKAF) (OTC:VLKPF) (OTCPK:VWAGY) (OTCPK:VWAPY) as the German auto giant faces increased pressure to explain to workers why it is prioritizing a €5 billion partnership with electric vehicle maker Rivian Automotive (RIVN) over protecting European market share and German jobs.

In a bombshell revelation, Volkswagen (OTCPK:VLKAF) Chief Executive Oliver Blume said the group was considering closing a large vehicle plant and a component factory, due largely to competition from Chinese rivals. “The European automotive industry is in a very demanding and serious situation. The economic environment has become even tougher, and new competitors are entering the European market,” he warned. Volkswagen (OTCPK:VLKAF) workers at the Wolfsburg headquarters were told that the auto giant expects to sell 500,000 fewer vehicles than before the Covid pandemic, which is the equivalent of around two plants (or about three months of Tesla (TSLA) deliveries). In Germany, the powerful union IG Metall union did not rule out strikes and said it saw no reason to reduce wage demands in planned pay negotiations. “Management has broken a taboo in a major way, and workers are prepared to be there when we call on them,” warned a spokesperson.

Looking at the reasons for the crumbling Volkswagen (OTCPK:VLKAF) power, Rhodium Group analyst Noah Barkin noted that Germany’s economic success in the first two decades of the 21st century was built on cheap energy from Russia, an open global trading system and highly competitive industrial products. “In the span of a few years, the first pillar has collapsed, and the other two are showing deep cracks,” he warned.

Seeking Alpha analyst Luca Socci noted that the Volkswagen (OTCPK:VLKAF) threat is so “perceivedly real” that countries such as Italy relying on Germany’s automotive industry for their component exports are now looking elsewhere to find alternatives in places like Mexico or Vietnam.

Crucially, Volkswagen (OTCPK:VLKAF) is also losing market share in China, despite the heavy investments in the market. Generally, foreign automakers’ market share in China has slipped recently. The trend is even more pronounced in the electric vehicle sector, where German automakers Volkswagen (OTCPK:VLKAF), BMW (OTCPK:BMWYY), and Mercedes-Benz (OTCPK:MBGAF) have poured in billions. Recent deliveries growth by ZEEKR Intelligent (ZK), BYD Company (OTCPK:BYDDF), Li Auto (LI), NIO (NIO), and XPeng (XPEV) in their home market has sparkled again, while the Chinese EV makers have also stood up to the regulatory challenges imposed by the U.S., the European Union, and Canada in planning for international expansion.

If Volkswagen (OTCPK:VLKAF) is losing the auto race, which automakers are winning? Based purely on share price performance, it is clear that Ferrari (RACE), General Motors (GM), Toyota (TM), and Honda Motor (HMC) have lapped Volkswagen (OTCPK:VLKAF) over the last 52 weeks. Interestingly, the only auto stock that has a consensus Buy rating with Seeking Alpha analysts and Wall Street analysts, as well as a Seeking Alpha Quant Rating of Buy, is General Motors (GM). That is despite GM’s (GM) share price already being up 34% on a year-to-date basis.