ii view: investors like Volkswagen's optimism

Taking tough decisions and offering an attractive dividend yield. We assess prospects for this major automaker.

11th March 2025 11:12

Keith Bowman from interactive investor

Full-year results to 31 December

Revenue up 1% to €324.7 billion
Profit down 15% to €19.1 billion
Dividend down 30% to €6.30 per ordinary share

Guidance:

Expects revenue growth for the 2025 year ahead of up to 5%

Chief executive Oliver Blume said:

“In 2024, Volkswagen Group has set a decisive strategic course. With innovative, emotional products. With trailblazing strategic decisions. In 2025, we will continue to focus on consistent implementation. As our transformation gains in traction, the new strength of Volkswagen Group comes to life.

“Our continuing model offensive, regionally tailored products for our markets around the globe and strong partners constitute the basis for sustainable positive development. With the ramp-up of affordable e-mobility, our autonomous vehicle fleet and the battery cell production in Germany, Volkswagen is showcasing European innovation for the world – as the global automotive tech driver.”

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ii round-up:

German car maker Volkswagen AG (XETRA:VOW) announced today that profit in 2024 beat previously reduced predictions, driven by a better-than-expected fourth-quarter performance.

A 3.5% fall in annual sales to 9 million vehicles was countered by increased financing revenue to leave total group revenues up 1% at €324.7 billion. Profit fell 15% to €19.1 billion, hindered by worker strikes and restructuring, although it did beat reduced hopes for 2024 of €18 billion.

Shares in the DAX 40 company rose 2% in European trading having come into this latest news down 16% over the last year. That’s similar to rivals Mercedes-Benz Group AG (XETRA:MBG) and Bayerische Motoren Werke AG (XETRA:BMW) and behind a 25% gain for all electric producer Tesla Inc (NASDAQ:TSLA). The DAX index is up 28% over that time.

As well as Volkswagen, other group brands include Audi, Skoda, Seat, Cupra, Lamborghini, Scania and Ducati. The German giant flagged political uncertainty, increasing trade restrictions and geopolitical tensions among hurdles for the year ahead, but expects revenue to grow by up to 5%.

Growth in South American vehicle numbers were more than countered by reduced demand in China. North American and European demand remained relatively flat.

Volkswagen expects its automotive investment ratio for 2025 to come in at between 12% and 13%, down from 13% in 2024. Order intake for all-electric vehicles (EVs) across Western Europe rose by 88% over 2024.

An dividend of €6.30 per ordinary share is down 30% from 2023, but inline with a payout policy of 30%.

ii view:

Founded in 1937 and headquartered in Wolfsburg, Germany, VW today manufacturers vehicles ranging from passenger cars to motorbikes and heavy trucks. Employing over 650,000 people, group products are sold in more than 150 countries. As well a retaining a shareholding in the previously wholly owned Porsche Automobil Holding SE Vorz-Inhaber-Akt stimmrechtslos (XETRA:PAH3), other interests include a joint venture with US EV maker Rivian Automotive Inc Class A (NASDAQ:RIVN) and a shareholding in China’s owner of the MG brand SAIC.

For investors, hurdles for the year ahead now include US trade tariffs as well as elevated borrowing costs for potential new customers. Lower wages in countries such as Mexico and China have placed a spotlight on generally higher European staff costs. Lower cost carmakers in China have been targeting expanding sales in Europe and the US, while industry-wide uncertainty over the dominant fuel type going forward has left VW still covering all bases.

More favourably, the diversity of the group’s brands regularly helps to even out the ups and downs of each. Adjustments to group practices have been made, with VW scrapping a range of worker agreements including a guarantee of jobs until 2029 at six German factories. Investment spending on vehicles and areas such as software may potentially reduce through 2025, while a forecast dividend yield of over 5% is not to be ignored.

In all, the tough economic outlook and highly competitive auto industry continue to provide reason for caution. That said, a recovery already underway, difficult management decisions made on restructuring, and a consensus analyst estimate of fair value above €120 per share may encourage interest from more speculative investors.

Positives:

Strong brand names including Audi and Volkswagen
Attractive dividend yield (not guaranteed)

Negatives:

Uncertain economic outlook
High EV competition

The average rating of stock market analysts:

Buy

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