Volkswagen undervalued! What about European Lithium and BYD?

Volkswagen – Buy when the cannons thunder

Volkswagen is in the midst of a transformation. The Wolfsburg-based company has not managed the transformation to an electric vehicle producer without problems. The focus on electric vehicles requires good batteries and fully developed software. While the batteries are not the biggest problem, the software seems to suffer from a number of teething troubles. This is causing additional sales difficulties. In Europe, sales of pure electric vehicles fell by 69% in the first half of the year. In Germany, subsidies have expired, which has had a significant impact on sales. Market share in one of the most important sales markets, China, has also shrunk.

Despite these difficulties, the Volkswagen share still appears cheap from a fundamental perspective. The price-to-earnings ratio is 3.75, and the price-to-book ratio is just 0.26. Compared to competitors such as BMW or Mercedes-Benz, the Wolfsburg-based company's stock is the cheapest, reflecting how many risks are already priced in. One should not overlook the market power of Volkswagen. The Company's portfolio includes brands such as Skoda, Seat, Audi, Bentley, Lamborghini, Porsche, Bugatti, and the motorcycle brand Ducati, as well as the commercial vehicle division with MAN and Scania.

Management has recognized the signs of the times and has begun to take countermeasures to prepare for the future. By 2030, 35,000 jobs are to be cut, and production capacity is to be reduced by 734,000 units. In addition, there will be pay cuts. These cost reductions will increase margins and allow the Company to invest in digitization and the development of new technologies for e-mobility. In December, the majority of analysts recommended buying or holding the stock and set price targets between EUR 100 and 140. Only UBS set the stock to sell with a target price of EUR 75. The stock is currently trading at EUR 86.82.

European Lithium – An undiscovered stock pearl

When talking about undervalued stocks, European Lithium should also be taken into consideration. The Company specializes in the identification, acquisition and development of critical minerals. The Australian company currently owns a total of six lithium deposits. These include a high-grade lithium deposit in Ireland, which is 761 km2 in size and on which up to 3.75% lithium oxide (Li2O) was found. In addition, there are two properties in Ukraine for which 20-year mining and production licences have been applied for. Should the war in Ukraine end, these properties could increase significantly in value. Last but not least, there are three projects in Austria that are in the immediate vicinity of the Wolfsberg Lithium Project.

The latter project belongs to a spin-off of the subsidiary Critical Metals Corp (CM), in which European Lithium is the majority shareholder with 74.3%. At the current CM share price of USD 6.78 on the NASDAQ, this stake is valued at USD 450 million. The Wolfsberg Project, which has a 12.88 million ton JORC resource with 1% Li2O, has secured a USD 15 million financing from BMW. In return, the Munich-based company has secured a long-term offtake agreement for lithium hydroxide. To refine the lithium, a strategic partnership was established with Saudi Arabia's Obeikan Group, which plans to build the lithium hydroxide facility in their country. This should result in cost savings of more than 80%. A positive pre-feasibility study (PFS) for the project is already available, and production is scheduled to start in 2027.

European Lithium has a further 7.5% interest in the Tanbreez Rare Earth Project in Greenland, with Critical Metals holding a further 42%. As a reminder, Donald Trump recently reiterated his desire to buy Greenland. The third interest, a 10.4% holding in Cyclone Metals, has recently increased significantly in value after Cyclone Metals signed a memorandum of understanding with Vale S.A., according to which Vale will invest up to AUD 200 million in the Iron Bear project in Canada. The property hosts an iron ore deposit of 16.6 billion tons with a grade of 29.3%. The share price of Cyclone Metals rose from AUD 0.025 to recently AUD 0.056. Despite all these assets, the European Lithium share has struggled to gain momentum. At a current price of AUD 0.04, the Company has a market capitalization of just AUD 58 million.

BYD – A new record year

While European automakers struggled last year, BYD is doing quite well. With 514,000 NEVs sold in December, the Company passed the 500,000 mark for monthly EV sales for the third consecutive month. In 2024, around 4.27 million vehicles were sold, an increase of around 41% over the previous year. One of the reasons for the high sales figures is mainly because the Chinese prefer to buy national products. However, this also shows how good BYD's vehicles are because, without quality, such a result could not be achieved.

Expansion into Europe and North America is the next logical step. To avoid high tariffs, the Company plans to build plants in Mexico for the US market and in Hungary for Europe. Local production in Europe is expected to begin as early as the end of 2025. To entice customers in Europe, the new Sealion 7 SUV will be introduced and an additional three hybrid models will be specially adapted for European customers. In the long term, up to 12 different models will be offered. The factory in Hungary will optimize the Company's supply chains.

Analysts are optimistic about the coming year and expect a new record. Sales are expected to grow by 19% in 2025 and earnings per share by 15%. To continue to grow at this rate, the expansion must be successful. BYD's goal is to sell around half of its vehicles outside China by 2030. Whether the plans will work out remains to be seen, as the European market for electric vehicles is growing more slowly than expected. High electricity costs, particularly in Germany, remain a significant issue. BYD's shares rose by around 34% last year and are currently trading at EUR 32.76. The stock is not undervalued.

Volkswagen faces challenges in its transformation into an electric vehicle producer. Nevertheless, fundamental data show that the stock is inexpensively valued compared to competitors. In addition, management is planning cost reductions to increase margins. European Lithium, which specialises in critical minerals, has promising lithium deposits in Ireland, Ukraine and Austria. Even more interesting are the participating interests, whose value far exceeds the current market capitalization. BYD is demonstrating to its European competitors how it is done, achieving record sales and planning an expansion into Europe.