VW CEO’s Embrace of Elon Musk’s Playbook Sends Stock Soaring

Volkswagen AG has swiftly gone from corporate dinosaur status to stock market darling, and its chief executive officer’s imitation of Elon Musk has a lot to do with it.

Herbert Diess has taken a page out of the Tesla CEO’s script for captivating investors big and small, taking a hands-on role in getting VW’s message out on social media and staging splashy events big on ambition. It’s paying off -- the carmaker’s common shares are now up almost 70% this year while the more liquid preference shares are up more than 40%.

The turnabout in sentiment has been dramatic and sudden. VW’s market capitalization dropped last year as Tesla vaulted past all other automakers to become the world’s most valuable by a wide margin. But already this month, VW has added about 36 billion euros ($43 billion) to its valuation, as optimism that it may be able to catch up to Tesla squeezes short sellers.

“This may be driven in part by U.S. retail investors jumping on the electric vehicle train,” said Frederic Benizri, a cross asset sales trader at Louis Capital Markets. High short interest in VW’s common shares is probably driving the squeeze, he said, with buying of American Depositary Receipts fueling outperformance.

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The amount of market value VW has added in March is well over half the total capitalization of Diess’s former employer, BMW AG, which set a goal Wednesday for roughly half of total sales to be all-electric by the end of the decade.

VW’s stock started its ascent when UBS Group AG analysts issued a bullish set of reports on its findings from tearing apart VW’s first mass-market model built off a dedicated EV platform, the ID.3 hatchback. The car is “the most credible EV effort by any legacy auto company so far,” wrote Patrick Hummel, who raised his price target on the shares.

Much like Musk tries to dominate the news cycle, VW has made rapid-fire announcements in the weeks since then. It took the wraps off a more spacious version of the Porsche Taycan, doubled the VW brand’s EV sales share target for Europe and announced through Diess’s LinkedIn and Twitter accounts that it would host an event similar to Tesla’s “Battery Day” in September.

“VW’s Power Day was a watershed event in the company’s history,” Tom Narayan, an analyst at RBC Capital Markets, wrote in a report Wednesday, raising his price target by roughly a third. He said VW’s battery-electric vehicles “should enable shares to re-rate higher given improved profitability.”

VW followed up its declaration that it aims to build six battery factories in Europe alone by the end of the decade with an annual earnings conference that it also chose to focus on EVs. The common shares soared as much as 29% intraday Tuesday in Frankfurt, the biggest jump since Porsche’s failed attempt to acquire the company a dozen years ago triggered a short squeeze.

VW CEO’s Embrace of Elon Musk’s Playbook Sends Stock Soaring

VW’s common stock is much less liquid than VW’s preference shares because three holders -- the Porsche and Piech family, the German state of Lower Saxony and Qatar -- hold 90% of it. The preference shares closed Tuesday at the highest since July 2015 and extended gains Wednesday.

VW’s ADRs are based on the common-share listing in Germany. Volume for the U.S.-traded securities has soared the past few days.

VW CEO’s Embrace of Elon Musk’s Playbook Sends Stock Soaring

In addition to VW’s key shareholders, one big beneficiary of the share surge is Diess. A little over a year ago, the 62-year-old CEO initiated a stock-buying plan with a standing order for 50,000 euros-worth of shares a month. The common stock hovered around 100 euros in March of last year, when the Covid-19 pandemic started to roil the global car industry. It’s now approaching 300 euros.

While the healthy gains Diess has generated lately are still a far cry from what Musk pulled off last year, they have partially made up for lowered compensation. The CEO’s salary, including pension contributions, fell to 7.7 million euros last year, from 8.4 million in 2019, VW disclosed Tuesday in its annual report.

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