Key insights
- An individual investor details a contrarian long thesis on Volkswagen (VOW3), arguing it is undervalued despite risks of margin compression during the EV transition. The author also mentions holding JD.com shares and selling covered calls. The overall U.S. market impact is slightly negative due to potential implications for global auto industry sentiment.
(I am not. I'm on 50mg of sertraline and my ex is now a lesbian. But hear. Me. Out.)
THE POSITION AND THE CONTEXT
Alright you degenerates. I'm the Italian guy who is still holding 1200 JD.com shares, while you idiots keep asking me if I've sold yet. No. I haven't. Today I had the galaxy-brained idea to sell covered calls at $33 strike expiring Friday.
This research started as a short thesis on Volkswagen. I wanted to find a reason to short $VOW3. What I found instead was a stock so cheap it made me question my entire understanding of markets, efficient pricing, and personal life choices - of which I've made several terrible ones.
[PHARMACOLOGICAL DISCLOSURE: This research was conducted over approximately 3 weeks while on 50mg of sertraline and 3 grams of beta-Alanine daily, which means my risk appetite is chemically suppressed but still somehow includes covered calls on JD.]
For those who don't know: Volkswagen makes cars. The Golf, the Tiguan, the Porsche, the Lamborghini, the Audi, the Skoda, the SEAT, the Bentley. Twelve brands. It is the largest automaker in Europe and one of the largest on earth by revenue. It is currently priced like a failing used car dealership in the suburbs of Dortmund…
THE BEAR CASE - WHAT VW ITSELF SAYS ABOUT WHY YOU'LL LOSE MONEY
Let me ask the questions a real bear would ask. And let me answer them using VW's own words, because management is legally required to be honest in annual reports even when they'd really rather not be.
What is the most likely way you lose money here?
You lose money the boring way. Not a collapse. Not a Dieselgate 2.0. Just years of margin compression during a forced EV transition while you wait for a turnaround that always seems to be 'two years away.'
"We operate in highly competitive global automotive markets and we anticipate that this competition will continue to intensify, resulting in sustained pricing pressure and an increased use of sales incentives by market participants."
→ Pricing power is eroding. If margins are 2.8% and stay there, every recession or product failure hits equity holders hard and fast.
"On the other hand, the financial result is significantly weaker compared to the previous year. This is partly due to the ramp-up of lower-margin electric vehicles."
→ EVs are the future. EVs are also currently margin-dilutive. VW is in the middle of paying the transition tax. The question is whether it survives long enough to collect the reward.
Operating margin in 2025: 2.8%. That's worse than the margin on a Footlong Sub. And Subway at least doesn't have to negotiate with IG Metall.
Where is the business structurally weak?
Three places. All painful.
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Scale complexity. Too many brands, platforms, factories, and stakeholders. Change is slow and expensive.
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Cyclicality. Autos are a macro product. When rates are high, financing costs rise and demand falls.
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China exposure. The world's biggest auto market is now a warzone for VW.
"[China's] fast-growing e-mobility market... is already dominated by high-volume domestic manufacturers... competitive pressure from local manufacturers will generally increase further."
→ BYD isn't competing with VW. BYD is eating VW's lunch, dinner, and is currently eyeing the breakfast leftovers. China went from VW's ATM to VW's biggest headache in about five years.
[LIFESTYLE DISCLOSURE: LIFESTYLE DISCLOSURE: At this point in my research I had to pause because my Chinese consultant arrived. I find that high-quality primary research benefits from breaks. I resumed after approximately 7 minutes. She had thoughts on BYD. They were broadly bullish.]
What assumptions need to go right.. and might not?
The bull case requires ALL of the following simultaneously:
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EV adoption grows fast enough to replace ICE profit pools before those pools evaporate.
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Battery costs and supply chains stay stable.
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VW executes software and electrification without multi-year delays.
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The industry avoids a multi-year discount war in Europe AND China.
"Research and development of our complex products, software and services entails considerable risk, including uncertainties regarding the widespread adoption by consumers and available infrastructure for such products."
→ VW is building expensive software-defined vehicles for an EV market that doesn't yet have the charging infrastructure in many of its most important markets. They're investing in the answer to a question the market hasn't fully asked yet.
"more rapidly evolving customer requirements... swift introduction of legislative initiatives... and the market entry of new competitors... will require changed products at a faster pace of innovation as well as adjustments to business models and cost structures."
→ The bull case assumes VW can move like a tech startup. VW has 660,000 employees, three supervisory boards, a state government on the cap table, and a union that has been there since before your parents were born.
What could permanently impair earnings?
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A prolonged price war in Europe and China that permanently resets industry margins.
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Geopolitics and trade barriers raising costs or blocking market access.
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Dieselgate tail risk. This is still ongoing.
"As a consequence of the diesel issue, numerous judicial and regulatory proceedings were initiated in various countries... In Germany, roughly 10 thousand individual lawsuits relating to various diesel engine types are currently pending."
→ Ten thousand lawsuits. Ten thousand. Ten fucking thousand. That's not a legal department, that's a law firm with its own law firm.
Is the balance sheet a hidden risk?
Not hidden. Just uncomfortable.
"There is an inherent risk that existing capital needs may not be met if the Company cannot obtain funding or if financing is only available under unfavorable conditions."
"There is a potential liquidity risk that we will be unable to cover existing capital requirements by raising funds or unable to finance the Group on reasonable terms, which in turn can have a substantially negative impact on Volkswagen's business position, earnings, financial position and net assets."
→ In a credit shock or downgrade cycle, VW faces higher refinancing costs right when it needs massive EV capex. The timing risk is real and underappreciated.
Key balance sheet facts:
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Total debt (consolidated): €264.7B (mostly financial services, but still)
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Auto division net debt: ~€13.2B
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Pension provisions: €23B - mandatory, non-negotiable cash drain
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S&P credit rating: BBB+ - one bad year from pressure territory
Where could management hurt shareholders?
This is my favorite section. Pay attention because this is where VW is like my ex.
[PERSONAL CIRCUMSTANCES DISCLOSURE: My ex-girlfriend is now a lesbian. She says that after me, she was never able to date a man again. I didn't fully understand this until I read about VW's governance structure. VOW3 preferred shareholders have no voting rights. Like me in that relationship, you get the economic exposure but zero say in any of the decisions. The Porsche-Piëch family makes all the choices. The State of Lower Saxony has a blocking minority. IG Metall has half the supervisory board. You have shares and a sad emoji.]
"The distribution of voting rights... Porsche Automobil Holding SE... held 53.3% of the voting rights... the State of Lower Saxony... 20.0%... Qatar Holding LLC... 17.0%."
→ Control is concentrated. Minority shareholders cannot force hard decisions. You are along for the ride, not driving the car - ironic, given the company.
"preferred shares... do not carry voting rights."
→ VOW3 holders have no vote. If governance choices dilute value, your only option is to exit. Voice? Never heard of her.
Why might investors be fooling themselves?
Because the 'cheap legacy champion' story feels good. Investors anchor to ICE-era profits and assume they come back. But pricing power is structurally weaker. The cost base is heavier. Competition is sharper. 'It will normalize' is not a plan.
"Competitive pressures are also likely to remain high in the future."
→ Investors may assume 'cycle mean-reversion.' VW is telling you it could be persistent. The question is whether you're buying a cyclical trough or a structural step-down.
FULL ANALYSIS
Top Competitors
|Company|P/E (TTM)|Div yield|D/E ratio|Op margin|Moat| |:-|:-|:-|:-|:-|:-| |Volkswagen (VOW3)|6.7x|7.35%|1.30x|3.4%|Moderate| |BMW (BMW.DE)|8.2x|6.1%|0.95x|5.2%|Moderate| |Mercedes-Benz (MBG.DE)|6.1x|8.2%|1.10x|5.9%|Moderate| |Stellantis (STLA)|5.4x|7.8%|0.48x|2.1%|Weak-Mod| |Toyota (TM)|10.2x|2.8%|0.58x|9.1%|Strong| |Ferrari (RACE)|42.0x|0.7%|0.30x|26.4%|Very strong| |BYD (1211 / BYDDY)|27.66x|0.38%|0.48x|4.20%|Strong (China scale + vertical integration)| |Tesla (TSLA)|332.94x|0%|0.18x|4.59%|Moderate|
Competitive Moat Assessment
Brand portfolio: STRONG. 12 brands from VW to Lamborghini. Premium mix provides pricing power where it still matters.
Manufacturing scale: MODERATE. 9M units/yr but 14M capacity = stranded cost drag.
EV technology: WEAK. Software behind Tesla and BYD. China EV sales fell 44% in 2025. Relies on Xpeng partnership.
Distribution network: STRONG. Global dealer network and financial services arm are durable competitive assets.
Governance / flexibility: VERY WEAK. Union + family + state government tripartite lock blocks rapid restructuring.
12-Month Bull Case
Restructuring delivers €10B cost savings ahead of schedule. China stabilizes in H2 20