Volkswagen, European Lithium, Xiaomi – Who benefits from the tariff hammer

Volkswagen – Uncertainty remains

There have been truly better investments than German automakers lately. Since mid-March alone, Volkswagen AG's preferred shares have lost around 27% in value and are currently trading at EUR 87.30, not far from the COVID-19 low of spring 2020, which was set at EUR 79.38. A drop below this level could lead to another significant sell-off.

It was to be expected that the first-quarter figures would not send investors into raptures. Instead, there was a significant drop in profits, and the operating result fell by 40% to EUR 2.8 billion compared to the same quarter of the previous year. This put the Wolfsburg-based company well below analyst consensus, which had still been expecting EUR 4.0 billion. The operating margin reached just 3.6%, down from 6.0% in the first quarter of 2024. By contrast, revenues increased by 3% to EUR 78 billion.

Three specific factors contributed to the disappointing results, which amounted to EUR 1.1 billion. These include provisions of EUR 600 million for stricter CO₂ regulations in the EU, EUR 200 million for restructuring at software subsidiary Cariad, and provisions and write-downs of EUR 300 million that were necessitated by the new US tariffs on vehicles. The tariffs of 25% on all vehicle imports introduced by President Donald Trump in early April represent a significant uncertainty factor, according to the Wolfsburg-based company.

Despite all the uncertainties, Volkswagen still expects to achieve its annual targets. Accordingly, revenue growth of 5% remains in place, with an operating margin in a range between 5.5% and 6.5%.

European Lithium – Profiting from the trade war

Donald Trump is lashing out wildly with his tariff hammer, and more than a few market participants are already noting that his actions are doing more harm to the US than to its main "adversary" China. After all, China holds several of the most powerful cards: monopolies on critical raw materials. Both the global automotive industry and defense contractors alike rely heavily on rare earth metals to manufacture modern weapons such as combat drones. More than 90% of these are produced and processed in China. At the beginning of April, an export ban was imposed on 6 of the 17 rare earth metals exported to the US. Deposits in Europe or the US are scarce; it takes years to build processing capacity.

Here, the Australian raw materials company has an ace up its sleeve - and that ace is Tanbreez in Greenland. As reported in the media in recent weeks, the US government, in particular, is eager to gain a foothold in this resource-rich region, which, although formally part of the Kingdom of Denmark, has increasingly come into Washington's focus due to its strategic importance.

In addition to the rare earth project, European Lithium, which currently has a market capitalization of AUD 68.36 million or the equivalent of EUR 37.88 million, has a highly interesting and diversified portfolio. The lion's share is the 74.3% interest in the NASDAQ-listed company Critical Metals Corp., which has a market capitalization of USD 206.54 million.

In Ireland, the Company has a significant lithium deposit with an exploration potential of up to 105 million tons of lithium oxide. In the Ukraine, despite the current political uncertainties, two projects are in the planning phase that show significant potential for value appreciation. In addition, the Company is developing three further projects in Austria, which are located in close proximity to the Wolfsberg Lithium Project. This project, which has a JORC resource of 12.88 million tons with a lithium oxide content of 1%, is supported by a financing commitment of USD 15 million from BMW.

European Lithium's current share price is EUR 0.023. In their latest analysis, the analysts at First Berlin see a 12-month target price of EUR 0.14, with a "Buy" rating.

Xiaomi – Optimistic analysts

Whether US President Donald Trump's tariff moves are arbitrary is up for debate - what is still missing, however, is a clear underlying strategy. The Republican's latest maneuver, exempting smartphones and computers from tariffs, caused the Hang Seng Index to rise by 2.5% on Monday morning. One company to benefit from this at least short-term solution was smartphone maker Xiaomi, which is looking for a bottom after a drastic crash of almost 43% to an interim low of EUR 4.19. The share managed to gain 3% to EUR 4.96. Only a sustained breakout above the EUR 5.10 mark would further improve the chart picture.

In their latest study, the analysts at HSBC Research see a target price of HKD 70.4, or EUR 7.97, for Xiaomi. This is because the Chinese company is less affected by US tariffs than the top dog, Apple, since the US market is not considered a core market.

Fitch Ratings has also revised Xiaomi's outlook from "Stable" to "Positive" while confirming the long-term issuer default ratings in both foreign and local currencies at BBB, as Fitch Ratings announced in a statement released on Wednesday.

The rating actions reflect the robust free cash flow of the consumer electronics company, the expanding Internet of Things (IoT) segment, and the increased market share in smartphones. In addition, the Company's expansion into the field of electric vehicles has strengthened brand awareness, according to Fitch.

Due to the expansion of punitive tariffs, the further development of Volkswagen remains uncertain, but the Company is sticking to its forecasts. Analysts see significant potential for both Xiaomi and European Lithium.