The Week That Was: Automotive Stocks


This week, we will discuss the new developments at Volkswagen AG (OTCMKTS:VLKAY) and Tata Motors (NYSE:TTM). Volkswagen has recently struggled to get sales up and running in the U.S. and China at the start of the year, and is now facing trouble due to uncertainty at the helm of the management. On the other hand, following a spell of declining sales in India, Tata Motors is planning to up its game in the domestic market, in a bid to increase sales going forward.

Volkswagen

The past week saw more drama at the helm of one of the world’s largest automakers. The Porsche and Piech families that control Volkswagen, were battling over the future leadership of the company. Ferdinand Piech, chairman and grandson of the inventor of the Volkswagen Beetle, said that he had lost confidence in Chief Executive Martin Winterkorn. The CEO resisted the efforts to oust him, and was backed by the board, which told Mr. Piech they had lost confidence in him as chairman. Soon after, Mr. Piech resigned from the position of chairman and from all company functions.

Relevant Articles
  1. Will Johnson & Johnson Stock Rebound To Its Pre-Inflation Shock Highs of $185?
  2. Should You Pick Eli Lilly Stock After A 4x Rise In Three Years?
  3. Down 9% This Year, What’s Next For Lululemon’s Stock Past Q4 Results?
  4. Down 14% In The Last Trading Session, Where Is Adobe Stock Headed?
  5. Will Higher Federal Government Spending, Gen AI Drive Digital Security Stocks Like CrowdStrike Higher?
  6. Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

We have a $44 price estimate for Volkswagen AG, which is below the current market price. However, we are currently in the process of revising our forecasts. The stock grew 2.35% in the last week.

See Our Complete Analysis For Volkswagen AG

This turmoil at Volkswagen is coming at a time when the company is struggling to takeover the global sales lead from Toyota. Volkswagen is facing difficulties in the U.S. and China. The German automaker’s U.S. sales declined 1.4% in Q1, despite a solid 5.6% increase in overall light-duty vehicle sales in the country. On the other hand, Volkswagen’s sales in its single largest market, China, also grew only 2% in the quarter. The company’s performance has been dragged down by its own-branded passenger vehicle brand, which continues to witness declining sales this year, and is operating at narrow margins due to high investments in research and development, made to back growth for this brand.

Increased volatility at the top management has created uncertainty in the minds of the workforce. Volkswagen now faces two weeks of uncertainty before its annual meeting on May 5. The supervisory board would hope to have a candidate ready to replace interim Chairman Berthold Huber.

Tata Motors

Tata’s own-branded passenger vehicles lineup, comprising the Nano, Indica, Vista, Indigo eCS, and the Manza witnessed sequentially declining sales in India on poor customer perception, lack of new or refreshed products, and higher acceptance of Tata’s passenger vehicles in fleet, impacting retail buyers, which dragged down the company’s market share in India to a mid-single-digit percentage. However, car sales in India have risen 2% for the company in fiscal 2015, boosted by incremental sales from the Zest and Bolt in the last few months.

Trefis’ price estimate for Tata Motors is $50, which is above the current market price. The stock declined 2.77% in the last week.

See Our Complete Analysis For Tata Motors

Tata Motors’ India operations forms approximately 10% of the company’s valuation, according to our estimates. Car sales are back on track in India, and also for Tata Motors it seems. Following the launch of the sub 4-meter compact sedan, Zest, in August last year, the automaker’s monthly car sales in the country rose in each successive month (over 2013 levels), after many consecutive months of decline. Zest and the newly launched hatchback Bolt are a part of the company’s Horizonext initiative, announced in 2013, which is an aggressive strategic plan for its passenger vehicle business unit to reverse the trend of flagging sales.

Now the company is looking to further revamp its model lineup and image in the domestic market, and has drawn a prospective product road-map till the end of the decade. The aggressive revamping of Tata Motors includes — setting up a global world class quality (WCQ) framework to audit manufacturing quality, a special group to monitor product quality, and developing a customer-centered approach. These changes, which started with the new Bolt and Zest, and the makeover of the Nano, could attract younger customers and change Tata’s customer perception, possibly boosting sales going forward.

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