Quick quiz. By how much do VW, BMW, Daimler Benz and Ford exceed the value of Tesla?
The equity in Tesla is valued at US$33b on the stock market. Daimler is about double at US$71b. VW, BMW and Ford are around US$50b.
So is Tesla expensive, or is everything else cheap?
Hard to say. But at this value, VW could arguably be better off significantly reducing its fossil fuel car business and putting its energy (pun intended) into the electric vehicle.
This may sound radical, but seasoned observers are already saying that the VW scandal could kill off diesel altogether. The FT is quoting an analyst at brokerage Bernstein saying “The move against VW is going to act as a catalyst to speed up the fall in diesel market share in Europe and halt it in the US.”
There has been a mounting backlash against diesel. A study from King’s College in London claims 9,400 people died prematurely in 2010 because they breathed in pollutants from diesel engines – more than died in car accidents.
Of the 10m diesel cars sold worldwide last year, 75% of them were bought in Europe. Diesel is more than half of the 10m cars sold in Europe, and VW is the dominant brand of diesel sold, by a factor two. We know what happens when an industry loses scale, so for VW, that business may now be gone.
Flow on effects? We haven’t heard other car companies comment on this issue, but it seems a little unlikely (though not impossible) that the diesel cars of rivals are totally in the clear, given the job mobility of car executives at senior level. Remember, this issue dates all the way back to cars made in 2009, so was likely on the drawing board for a few years before that – there could be ten years of car executive history in this. It seems hard to believe that VW will in the end be the only company hurt, even if it is the biggest player.
This comes at a significant time for the fossil fuel industry generally.
Why? Who exactly needs a car with a range of 500 kilometres which can carry 4 people and some luggage when the majority of trips are less than 10 kilometres, with only a driver on board? Car sharing and electric cars increasingly look like part of a solution to a problem which has been highlighted by VW’s need to falsify results in order to be “profitable”.
VW could do worse, at the current market valuation, than use the crisis as a means to point the company more seriously into electrics. With its existing know-how and global distribution, and given that the electric vehicle is no longer cutting edge technology, the stock price might even go up.
October 2023 UpdatePlus28 Nov 2023
‘If you can do anything, embrace AI’: Graham Rich’s Portfolio Construction Forum and Loftus Peak02 Nov 2023
Loftus Peak wins ‘Best Australian Based Global Equity Manager’ at 2023 Australian Fund Manager Awards26 Oct 2023
Geopolitical shocks keep markets on edge26 Oct 2023
Share this Post