EUR 850.00 For Business Accounts Only

Morningstar | Volkswagen Dieselgate creates an opportunity for long-term investors willing to accept higher risk.

Uncertainty regarding regulators' intense scrutiny of diesel powertrain passenger vehicles will plague Volkswagen for several more months, and higher spending to launch electrified powertrains and diesel headline risk are pressuring the stock. But with an enviable portfolio of brands, a bevy of new and redesigned models, leading shares in many of the world's markets, and a healthy pile of cash (despite Dieselgate-related outlays), Volkswagen appears able to endure potentially substantial fines and judgments while maintaining spending for new technology vehicle launches. Global demand for Volkswagen products has been steady to slightly higher despite potentially brand-crippling diesel scandal news.In our view, Volkswagen is successfully executing a global automotive strategy. Geographically diverse and profitable operations reduce its dependence on domestic volume. A broad array of brands, serving multiple segments, reduces reliance on any one vehicle category. As one of the world's leading volume producers, Volkswagen's economies of scale from common platforms across a growing number of models enable cost savings unattainable by smaller competitors.Volkswagen's 2018 volume objective to sell 10 million vehicles globally was achieved in 2014, four years ahead of schedule. Owing to the diesel scandal, Volkswagen global sales declined 2% in 2015 but have rebounded since, finishing 2017 at 10.8 million. We do not believe that new management will set long-term targets that focus more on profitable growth and less on a volume-at-all-costs objective. We still think that Volkswagen should continue to pursue its MQB manufacturing strategy. The strategy increases architecture commonality, which increases scale and reduces cost. Volkswagen completed the acquisition of Porsche's automaking operations in August 2012. The company also owns premium brand Audi, ultraluxury brand Bentley, the Italian exotic sports car maker Lamborghini, and the French exotic car company Bugatti. However, potential moatiness from these venerable brand names gets diluted in consolidation with the mass-market Volkswagen, Skoda, and SEAT brands, plus the lower-profit commercial vehicle business.