Tesla and Volkswagen share price outlook (2021)

• Tesla’s 2020 operational highlights
• Volkswagen’s ambitious 2021 EV target
• Which company do analysts currently favour?
• How to trade Tesla and Volkswagen with IG

The Tesla paradox: 2020 revisited

For a long time now Tesla (TSLA) has dominated the electric vehicle (EV) market. Sleek designs, a lack of substantive competition, and an adoring and at times obsessive fanbase – all likely contributed to this dominance.

Yet competition was always coming, it was a matter of when, not if.

Tesla’s CEO – Elon Musk – for all his flaws, has seemed inspired, not intimidated by this ever looming threat of competition. He, and the Tesla fanbase, have rallied against the naysayers for years.

Tesla is more than an automaker they will argue. It is a tech stock. A battery and solar company. An autonomous vehicles company. A robotaxi company? A way of life.

To be sure, Tesla may be perceived as those things and more – but as it currently stands it remains squarely an automotive company, or perhaps even a regulatory credits company if you want to get clever.

Centrally, and in terms of revenue at least, the company remains anchored to its auto business. In fiscal 2020, of its $31.5 billion in revenue, total automotive revenues (including automotive sales and leasing) came in at $27.2 billion – representing approximately 83% of total revenues.

Rounding out that top-line figure, Services and Other contributed $2.3 billion in revenue in 2020, while Energy Generation and Storage, which is chiefly concerned with the 'sales and leasing of solar energy generation and energy storage products, delivered revenues of $1.94 billion.

Mind you, while the lion's share of revenue is derived from Tesla selling Teslas, the same cannot be said for the automaker’s profits. The company’s profits, in 2020 at least, were driven primarily by its sale of regulatory credits, which totalled $1.58 billion.

What are these credits exactly? As the company explains:

‘We earn tradable credits in the operation of our automotive business under various regulations related to zero-emission vehicles, greenhouse gas, fuel economy and clean fuel. We sell these credits to other regulated entities who can use the credits to comply with emission standards and other regulatory requirements.’

Not only are these credits extremely sought after, but they were central to the company’s 2020 profit. To illustrate that point, with Tesla posting $721 million in GAAP net income for 2020, without the sale of these regulatory credits, the company would of actually been in the red for FY20.

As Gordon Johnson, from GLJ research bluntly put it: ‘These guys are losing money selling cars. They're making money selling credits. And the credits are going away.’

One other small point that is worth addressing is Tesla’s recent bitcoin purchase. In February the automaker told the market that it had bought $1.5 billion dollars’ worth of bitcoin. Management said the aim of this purchase was to diversify and maximise the returns from the cash held on its balance sheet. In late February the paper profits on those holdings were estimated to be worth over $1 billion.

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Tesla share price: An obsession for shorts and longs

With all this going on, the Tesla share price, though down year-to-date, is up a staggering 686% in the last 12-months. TSLA last traded at $678 per share, implying a market capitalisation of $649 billion.

With that recent share price weakness, one wonders if the market is at all concerned about Tesla’s outlook? Management’s FY21 production guidance, a metric closely scrutinised by analysts and the market more broadly, was somewhat vague when handed down as part of the Q4 and FY20 results.

For reference, in 2020 the company produced 509,737 vehicles and delivered 499,550 vehicles – a record for the company. Without providing a figure, management noted that it was targeting a production growth rate of around 50% going forward. The full excerpt, below:

‘We are planning to grow our manufacturing capacity as quickly as possible. Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries. In some years we may grow faster, which we expect to be the case in 2021.’

Those lofty goals were qualified somewhat, with it being flagged that:

‘The rate of growth will depend on our equipment capacity, operational efficiency and capacity and stability of the supply chain.’

Assuming a 50% growth rate, Tesla would be looking to deliver somewhere around 750,000 vehicles in 2021. Though, as the above quote suggests, the expectation is for faster growth in the coming year.

And using the prior year as a guide, Tesla should release its Q1 2021 Vehicle Production & Deliveries results in early April; a release, which should give investors insight into how the company is tracking against that delivery guidance.

Volkswagen share price surges on 2021 EV target

Volkswagen’s common stock (VOW.DE) finished out Tuesday up 11.55% at €266.60 per share, though traded as high as €309.40 per share during the session, after the automaker revealed an ambitious set of targets concerning its expansion into the EV market.

‘Electrification and digitalization are changing the vehicle faster and more radically than ever before. Economies of scale are absolutely critical for both issues. Our platform roadmap will put us in an even better position to tap the full potential of our Group alliance,’ said the group’s CEO, Herbert Diess.

Volkswagen has its eyes squarely on Tesla’s EV throne.

‘The Group aims to be the global market leader for electric mobility by 2025 at the latest.'

In 2020 the automaker tripled its all-electric vehicle output and has no intention of slowing down. In 2021 the company said it was aiming to deliver 1 million all electric and hybrid vehicles.

To achieved these ambitious goals, Volkswagen said it planned to commit €46 billion to the development of its electric mobility and hybridized product line-up over the next five years.

Ultimately, the storied automaker should not be underestimated. In 2020 Volkswagen produced 8,900,000 vehicles, delivered 9,305,000 vehicles, had total sales of €222.9 billion and operating profits of €10.6 billion.

Tesla VS Volkswagen

With the above considered, below we compare and contrast some of the key expectations and metrics from both companies.

Deliveries

In terms of delivery guidance, as noted above, Volkswagen has said it is aiming to deliver 1 million all electric and hybrid vehicles in 2021. Of this 1 million target, the company did not note what proportion it expected to be all electric and what percentage it expected to be hybrid. In 2020, Volkswagen sold 231,600 all electric vehicles, triple what it sold the year prior.

_{1. Estimate includes all electric and hybrid vehicle deliveries; 2. Estimate assumes a 50% year-on-year growth rate.}

Valuation

While valuation metrics are highly subjective, by historical standards at least, Volkswagen’s valuation is significantly less demanding than Tesla’s

^{Data from YCharts.}

Analyst forecasts

With Tesla’s mammoth share price run over the last year, it’s hardly surprising to see the stock command a Hold consensus rating. Despite that, on a by-the-numbers basis, Volkswagen appears to be the favoured stock by analysts, carrying a Buy consensus rating on average.

^{Data from MarketBeat.}

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