Last Monday's admission by VW's financial chief, Arno Antlitz, that “We are short of around 500,000 car sales a year,” was big news early last week, but the share price only took a sharp move lower on Friday. Optimism about the impact of cost-cutting saw an initial bounce after the news, that dissipated by Friday as global stocks took a hit. VW is now down over 37% since early April.
VW is unlikely to be the only car company suffering from a global growth slowdown and a massive increase in production and exports (with a huge improvement in the quality) of cars coming from China. According to data from OICA (International Organization of Motor Vehicle Manufacturers) car production in Europe and US has never recovered post-covid, with all of the increases in production coming from Asia, most notably China.
European passenger vehicle production in 2023 was 17% below 2019 levels, US 2023 production was down 31% vs 2019. By contrast China was up 22% over the same period. In 2019 China produced 83% of the number of cars that US and Europe made combined. Now China makes 126% of that combined US/Europe production. This is a huge swing in market share, and US and European car manufacturers are all going to be ultimately impacted by it.
This cannot go on indefinitely and the governments in EU and US are taking steps to impose tariffs on Chinese producers. This will only have a short-term impact as the Chinese producers set up production in Eastern Europe and Mexico to avoid the tariffs. Simply put, making an EV is MUCH simpler than making an internal combustion engine car, and plays into China's strength in electronics and battery production and technology.
Tesla is the next shoe to fall. Whilst they have strong production in China, they have not released any exciting new vehicles there for some time. The growing distrust between China and US is impacting their China sales growth, and TSLA trades at an extremely rich 51 P/E vs most traditional global automakers trading at P/Es of 4-7. a 51 P/E suggests strong sales growth is anticipated, and that is simply not happening anymore at Tesla. Tesla has hit a wall with sales growth in 12 months ending June 2024 being only +~2% vs the previous 12 months.
I am looking to buy low delta puts on TSLA that expire after the next production numbers and earnings release in 2nd half of October.
25th October 180 strike TSLA puts for around $7. Breakeven $173.00 at expiry.
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