Volkswagen: Deep Restructuring Unlocks Value at Leading Automaker

Stuart Mitchell of S. W. Mitchell Capital presented his investment thesis on Volkswagen (Germany: VOW, VOW3) at European Investing Summit 2025.

Thesis summary:

Volkswagen is a controversial, deep-value cyclical investment. VW is the world’s second-largest car manufacturer with a 9% market share and the leading manufacturer in Europe with a 23% share. The group’s brand portfolio spans from mass-market Skoda (8% operating margin) to luxury Porsche (15% operating margin). Stuart notes that a long-standing challenge has been the core VW auto brand, which, despite its volume, earns only a 2% operating margin.

The investment thesis rests on management addressing three main challenges that have caused the share price to fall to the low 90s. The first challenge is China, where VW has a 20% share in internal combustion engines (ICE) but only 4% in battery electric vehicles (BEVs). Stuart argues that VW is responding effectively by introducing the ‘China Main Platform’ to cut production costs by 40% and creating the Volkswagen China Technology Company to develop software localized for Chinese consumers. A joint venture with XPENG will also provide a low-cost platform for Audi.

The second challenge is European profitability. Stuart points to a deep restructuring plan (‘Zukunft Volkswagen’) agreed upon in December 2024. This plan includes cutting 35,000 German jobs (25% of German capacity), reducing Wolfsburg capacity from four lines to two, and suspending a 5% wage increase until 2030. This contributes to a total cost-saving target of €15 billion. The third challenge, technology, Stuart believes is “more imagined than real,” arguing VW’s pragmatic “make and buy” approach, including JVs with Rivian and XPENG, is narrowing any perceived gap.

Stuart presents a sum-of-the-parts (SOTP) valuation to highlight the disconnect, with the stock recently trading near €92. A conservative SOTP analysis values the high-end Porsche models (911, Panamera) at 10x EV/EBIT and the mid-level luxury brands (Audi, Lamborghini, and the rest of Porsche) at 4x EV/EBIT. This SOTP, which also includes the truck and financial services divisions, plus €40 billion in industrial net cash, less pensions and minorities, results in a value per share of €313. Stuart notes this 10x multiple for Porsche is a fraction of Ferrari’s. If the restructuring is executed, he also projects the business could trade on 1.5x 2027 earnings.

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About the instructor:

Stuart Mitchell is the Managing Partner and CIO of S. W. Mitchell Capital and the Investment Manager of the SWMC European Fund, as well as a number of managed accounts.

Prior to founding SWMC in 2005 Stuart was a Principal, Director and Head of Specialist Equities at JO Hambro Investment Management (JOHIM, now Waverton Investment Management). At JOHIM he set up and managed the Charlemagne Fund, a long/short European fund, and the JOHIM European Fund, a long only European fund. The JOHIM European Fund rose by 133% since inception in December 1998 until March 2005 compared with 8% for the benchmark index and was number 1 rated by Micropal within its sector and three star ranked by S&P.

Upon leaving university in 1987 Stuart joined Morgan Grenfell Asset Management (MGAM) and soon afterwards assumed responsibility for managing the continental European equity assets for MGAM’s British pension fund clients. Stuart was appointed a director of MGAM in 1996. He was then made Head of European Equities and was responsible for $27 billion of equity assets. Whilst at MGAM he managed the Morgan Grenfell European Fund which rose by 123% from January 1990 to June 1996 compared with 85% for the benchmark index and was awarded 1st place by Micropal (5 year awards) in 1996.

Stuart was born in Scotland and educated at Fettes College and St. Andrews University where he read Medieval History. He is also a graduate of the Owner/President Management programme from the Harvard Business School. Stuart speaks English and French.