Volkswagen has the leading market share in China's car market and is benefiting from a recovery in European demand. The main profits driver for the group is the fast growing premium car brands of Audi and Porsche. The valuation is not expensive but the cyclical nature of car demand makes the shares volatile.
Volkswagen is something of a “car conglomerate" with it covering the full spectrum of the market. Skoda and Seat are value brands while Volkswagen passenger cars are mid-market and generate the bulk of group sales.
At the top end of the market are Porsche, Audi, Lamborghini, Bentley, Bugatti and Ducati motorcycles. Volkswagen also has a strong position in trucks and buses with it owning the brands Scania and MAN.
Volkswagen's twelve brands
Source: Volkswagen investor presentation
In 2014 the main driver of sales volumes for was the Europe/Other markets region at 4.4m vehicles while Asia Pacific came in at 4.1m. North America saw only 0.88m cars sold and South America came in at 0.79m in 2014.
This reflects the weak position of the volume brands like Volkswagen and SEAT in the United States – the world's second largest car market. However, the premium brands of Audi and Porsche are successful around the world.
China is world's largest car market and is has seen the rapid pace of sales growth start to moderate. In the January to October 2014 Volkswagen's market in China was 21% which is double the market share of its nearest competitor.
Source: Volkswagen investor presentation
Premium cars are set for higher sales growth than the global car market due to rising income per capita. This is illustrated by the success of Audi in China which has seen sales increase rapidly since 2007.
Audi sales in China: deliveries up six-fold since 2007
Source: Volkswagen investor presentation
Volkswagen's profit drivers
Looking at operating profits (excluding China) in 2014 and Audi made a €5.15bn contribution while Porsche came in at €2.7bn. Volkswagen Passenger cars generated €2.5bn of operating profits and in Scania came in at €1bn.
Total operating profits (excluding China) were €12.7bn in 2014 with premium cars the key contributors. Adding in the Chinese joint venture and total operating profit came in at €17.9bn in 2014 which highlights China's importance.
Volkswagen has been a growth story since 2007
Source: Volkswagen investor presentation
Volkswagen's recent performance
The weakness of the Volkswagen passenger car brand…
