Volkswagen, Defense Metals, BYD, Rheinmetall - China's weapon in the tech race

Volkswagen - The outlook sends the share price plummeting

On March 13, Volkswagen presented its figures for the 2023 financial year. The Group generated a net profit of EUR 17.9 billion in the financial year. This corresponds to an increase in earnings per ordinary share of EUR 2.26 to EUR 31.98, an increase of 8%. Sales amounted to EUR 322.3 billion, an increase of 15.4% compared to the previous year. Deliveries rose by 12% to 9.24 million vehicles, with all regions contributing to this growth. A total of 771,100 battery electric vehicles were delivered during the year, an increase of 35% compared to 2022. The Automotive Division's net cash flow increased to EUR 10.7 billion.

Although the figures look good at first glance, the Wolfsburg-based company faces several challenges. One major issue is the largest market for electric vehicles in China. The Company forecasts a decline in operating profit in the Middle Kingdom for 2024. In 2023, around EUR 2.6 billion was still reported there. Competition with BYD, Nio and others is causing margins to fall. The Chinese are ahead of the German car manufacturer, particularly in the area of software. Whether Volkswagen can make up for this shortfall through closer cooperation with XPeng and a stronger focus on local needs in China remains to be seen.

Volkswagen still intends to develop its own software solution through its CARIAD division. Car expert Ferdinand Dudenhöffer criticizes VW's approach and would instead rely on a partnership with a tech giant. With net liquidity of EUR 40.3 billion at the end of 2023, the Volkswagen Group is in a very stable financial position, which should enable it to press ahead with the transformation of the company. Shareholders were anything but enthusiastic about the outlook for the current year and sent the share price plummeting. One share currently costs EUR 114.90.

Defense Metals - Samples shipped

Defense Metals has set itself the task of making a significant contribution to the global supply of rare earth elements (REE) with its Wicheeda project in British Columbia, Canada. This project, which covers an area of over 8,301 hectares, positions Defense Metals as a potential key player in the rare earth industry. With the goal of producing up to 25,000 tons of rare earths annually, the Company could significantly contribute to the diversification of global supply chains. The preliminary feasibility study, which is being carried out in cooperation with renowned engineering firms, is currently underway. An update on the progress of its metallurgical work program was provided in February.

The metallurgical, geotechnical, geochemical and environmental test work has been completed and indicates that production of a high-grade mineral concentrate is possible. In addition, Defense Metals has signed a strategic co-design agreement with the McLeod Lake Indian Band that ensures community involvement in the project and demonstrates their long-term support. The preliminary feasibility study is expected to be completed in Q2. On March 4, the Company announced that it had supplied samples of mixed rare earth carbonates to two major REE processing companies obtained from hydrometallurgical test work. The companies supplied confirmed the high quality of the samples sent.

The demand for this critical raw material will continue to increase. This is due, on the one hand, to the armament of many countries and, on the other hand, to the many different areas of application, ranging from medical devices to renewable energies, aerospace and the automotive industry. Vehicle manufacturers need the raw material regardless of whether they are using conventional combustion engines or electric vehicles. The latter requires more REEs. Those interested in learning more about the Company should watch the Company presentation by Dr. Luisa Moreno from the 10th International Investment Forum on YouTube from February. At the end of last year, the share price peaked at CAD 0.275, an increase of over 80%, and has since consolidated. One share currently costs CAD 0.21.

Rheinmetall - Riding the wave of success

The Düsseldorf-based defense and technology group Rheinmetall presented its business figures for 2023 on March 14 and reported a significant increase in sales and earnings. The Company increased its sales by 12% to EUR 7.176 billion, once again reaching a record level. EBIT before purchase price allocation climbed to EUR 968 million, compared to EUR 747 million in the previous year. As a result, the operating result improved by an impressive 19% to a new record of EUR 918 million, while the Group's operating margin increased from 12.0% in the previous year to 12.8%.

This success is also reflected in the new all-time high for Rheinmetall's order backlog, which rose by a whopping 44% to EUR 38.3 billion (previous year: EUR 26.6 billion). Such growth illustrates the sustained high demand for the Group's products and services on global markets. As a sign of confidence in the Company's economic strength and as a thank you to the shareholders, the Executive Board is proposing a dividend increase of EUR 5.70 per share, a considerable increase on the previous year's EUR 4.30.

Rheinmetall is optimistic for the current year, 2024, and expects continued strong sales and earnings growth. The Company is forecasting an increase in sales to around EUR 10 billion, accompanied by a further increase in profitability. The forecasted operating return on sales of 14 to 15% underlines the management's confidence in future business development. The main driver is the growing demand for defense and security technologies. The Düsseldorf-based company is likely to receive a large slice of the EUR 500 million cake that the EU is making available for the expansion of ammunition production. No wonder the share is jumping from one all-time high to the next. The share is currently trading at EUR 469.20.

Rare earths are a critical raw material; if Western countries want to become more independent, they need alternatives. One alternative is Defense Metals, which aims to produce up to 25,000 tons of rare earths per year. This can then be used to supply the defense and automotive industries. Volkswagen is in a transformation phase. On the one hand, it wants to convert to electric vehicles, but on the other hand, the sales figures are not high enough, and the margins are too low. The situation is different at Rheinmetall, which has full order books and is trying to expand its capacities.