The Week That Was: Volkswagen, Tata Motors, Daimler

-62.32%
Downside
25.14
Market
9.47
Trefis
TTM: Tata Motors logo
TTM
Tata Motors

In the past week, more automotive numbers for August have been released, and they pretty much follow the trends seen during the last few months. While China’s vehicle market remains under duress, automakers, particularly Volkswagen AG (OTCMKTS:VLKAY) and Tata Motors (NYSE:TTM), have struggled to sell more vehicles in what was their single-largest and highest-growth market till last year. But, on the other hand, Daimler AG has been faring well, some might say against all odds, but this is because of the premium automaker’s successful compact and SUV/Crossover lineup in the country. Let’s shed more light on how things played out in August.

Volkswagen

Volkswagen might have overtaken Toyota as the world’s highest-selling automaker this year, but the German giant continues to struggle in the U.S. and China– the world’s two biggest markets. The Volkswagen Passenger Cars division (including cars, light commercial vehicles, and SEAT), which forms approximately 18% of the company’s valuation, and was a massive 46% contributor to the net revenues last year, has sold 2.8% fewer vehicles in the U.S. through August, including a large 8% fall in volumes last month alone. With sales declining for the namesake passenger vehicle brand, the company had relied on the high growth for its premium brands Audi, Porsche, and Bentley, which not only is accretive to the top line, but owing to the high model prices, is more profitable, too.

Relevant Articles
  1. Tata Motors Stock Up After Announcement Of Investment In EV Business, Will It Sustain?
  2. Will Tata Motors Achieve Pre-Corona Stock Price?
  3. Can Tata Motors Stock Grow After A Slowdown Warning?
  4. Is Jaguar Land Rover 50%, 70%, Or 80% Of Tata Motors?
  5. Why Tata Motors Stock Has Rallied 30% Over The Last Week
  6. How Does Tata Motors Compare Against A Giant Like Toyota Motors?

We have a $46 price estimate for Volkswagen AG, which is above the current market price. The stock has risen 6.88% this week.

See Our Complete Analysis For Volkswagen AG

However, Audi has taken a hit in China, its single largest market, with sales declining 0.8% year-over-year through August. The world’s largest automotive market has suffered a substantial hit this year, with sales of passenger vehicles declining in both June and July by 3.4% and 6.6%, respectively. And now, passenger vehicle sales have declined another 3.4% in August. It’s safe to say that Volkswagen hasn’t stood strong amid the normalization of the Chinese automotive market.

In other news, Suzuki and Volkswagen ended their six-year long partnership, with the former buying off Volkswagen’s near 20% stake for $3.8 billion. The deal between the two companies included co-operation on technology and expansion in developing automotive markets such as India, where Suzuki had a leading position. The relationship between the two companies was already strained, with Suzuki accusing Volkswagen of withholding information the German company had promised to share, and Volkswagen objecting to Suzuki buying diesel engines from the Italian automaker Fiat.

china sales volume august

Tata Motors

The Indian automaker’s Jaguar Land Rover division continues to underperform in China, which is also a reason why the stock has been declining in recent times. The contribution of China to Jaguar Land Rover’s (JLR) net retail sales has decreased from 28% in Q1 fiscal 2014, to 18% this Q1 quarter (ended June), due to a large 33% fall in retail volume sales in the country. The impact of the fall in China demand is also apparent in Tata Motors’ financials. Net revenues fell 6% and profit after tax was almost half of what it was in the last June quarter, hurt by the decline in China sales at JLR, which forms almost 90% of the group’s valuation as per our estimates.

Trefis’ price estimate for Tata Motors is $37, which is above the current market price. The stock has risen 6.75% this week.

See Our Complete Analysis For Tata Motors

And volume sales continue to suffer in August, down by 31.2% year-over-year. The case with JLR might be bad timing due to the problems in ramping up sales of the Evoque, which is rolling out from a completely new manufacturing facility in China, the first time JLR is building vehicles from scratch outside of the U.K. It might take time for the company to speed up production. In order to boost its retail sales, the brand cut the starting price of its China-produced Evoque, is also launching the new Jaguar XF and XJ models this year, and running out the Freelander, which will be replaced by the Discovery Sport. Once the reach and availability of the new locally-built models increase in the country, the company’s sales might begin to turn around. However, JLR could also continue to face a tough time in China despite an increase in supply, if the demand remains low.

overall sales august

Daimler

While Audi and BMW witnessed 4.1% and 1.4% declines, respectively, in August in China, Mercedes continued to register strong growth, growing by an impressive 53.1%. The brand expects this trend to continue through the rest of the year, and might not look to increase discounts despite the increased economic volatility. This could protect profitability. In addition, while Mercedes had for around two years trailed its compatriots in terms of operating margins, as of Q2, it has the highest margins among the German big three. Compared to BMW and Audi’s 8.4% and 9.7% operating margins, respectively (the figure for Audi doesn’t include China results), Mercedes’ margins stood at 10.5%.

We have a $91 price estimate for Daimler AG, which is above the current market price. The stock has risen 8.83% this week.

See Our Complete Analysis For Daimler AG

August also saw Mercedes overtake Audi as the second highest-selling luxury automaker in the world, behind BMW. Mercedes sold 1,187,980 units through August, while Audi sold 1,177,100 units.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research