As if in repentance for its emissions scandal of 2015, Volkswagen AG (VWAGY -0.64%). is redeeming itself under the guise of Audi. One of the higher-end brands under the Volkswagen umbrella, Audi is fighting a fierce war in the electric auto manufacturing space with a two-pronged approach, both stealing market share from Tesla in the luxury electric space and hoping to grab a large piece of the station wagon market in the U.S.
The new e-tron SUV is making inroads
Tesla's dominance in the electric market is waning somewhat as competition from abroad, Audi and Jaguar, weakens its sales. According to tech and auto analyst Toni Sacconaghi of A. B. Bernstein, a money management firm, the total market for luxury electric vehicles, which is over $60,000, has seen limited growth in 2018 and 2019. Tesla's sales volume has decreased during that time and is losing some of its share to competitors.
In the first half of 2019, Tesla's Model S and X gross profit dollars fell 57% year over year. Tesla's stock has reflected the weakness, plummeting more than 30% this year. In comparison, Volkswagen's stock price has held steady at around $17 on Sept. 11, 2019, close to its $16 value one year earlier.
Volkswagen is making in-roads with electric cars and station wagons. Image source: Getty Images.
Audi's sales are up, but will electric sales take off in the U.S.?
Audi sales in the U.S. were up 3% with the launch of the all-new Q3 and the continued growth of the A6, A7, and A8 models. More importantly, if electric cars finally take off in the U.S. market, Volkswagen might have timed it just right.
There is increasing pressure on Congress to encourage electric cars and to keep them affordable through tax incentives. But the federal tax incentives that have made the cars more affordable are beginning to expire. If Congress doesn't keep these credits alive, there will be little growth in the electric vehicle market in the U.S., but continued growth in China.
The Driving America Forward Act was introduced to the Senate in April by a bipartisan group of lawmakers whose goal is to continue incentives until the growing U.S. market for electric cars is large enough to bring prices down. So far, tax incentives have worked, and more people are buying electric cars. The political trajectory seems to be continuing in that direction, and auto manufacturers seem to be expecting a growing market.
Audi is set to lead in the burgeoning station wagon market in the U.S.
The second prong of Volkswagen's strategy is to grab the early adopters in the U.S. station wagon market.
In Europe, station wagons are favored over SUVs, while in the U.S. the SUV still reigns. However, this situation is changing. Sales of station wagons are among the fastest growing in the past five years, outpacing full-size pickup trucks and all other classes of passenger cars.
Data from 2013 through 2018 show that sales of station wagons, such as the AMG E63 S and Volvo V90, were up a total of 29% during that time. Midsize pickups, entry-level SUVs, and compact crossovers were the only classes of vehicles that outpaced wagons in terms of growth.
Admittedly, the double-digit growth over the past five years does not mean there is a huge market for wagons; they accounted for only 2% of total vehicles sales in the U.S. However, it is a market that Volkswagen could dominate if it is the first to get there.
And guess what? Volkswagen is introducing its all-new Audi RS 6 Avant station wagon to the U.S. market in 2020.
Volkswagen's recent earnings
Volkswagen's financials showed growth for the second quarter of 2019 when operating profit rose by 30%. The company stated that it expects vehicle deliveries in 2019 to exceed the prior-year figure and for revenues in the passenger cars and commercial vehicles divisions to grow at least 5%. The company's after-tax profit increased 24% as Volkswagen managed to increase its share in contracting markets and to profit from its SUVs, and the luxury Porsche brand increased its portion of the sales mix.
Among car manufacturers, Volkswagen is looking like one of the better investments due to its potential dominance in the U.S. station wagon market, its inroads into the electric vehicle market, and its strong financial position overall.
