JD

Hi everyone this is your italian friend that bought 35k worth of JD shares (still holding but yesterday I had the genius idea to sell covered calls with 28$ strike expiring Friday, fortunately tomorrow there’s the dividend and I will have the occasion to unload them in the 1$ dump)   This research is about Volkswagen Just for you to know this started as a deep research with the objective to find a reason to short this stock.   I will start with a couple of questions for the bear case, and what aswer can be better than one given by VOW own management?   What is the most likely way an investor could lose money here?   The most likely loss is years of weak returns from margin compression during the EV transition. VW has to spend heavily. EVs are still lower margin. Pricing is getting more competitive. If Europe slows and China stays a price war, profits can stagnate. The stock can drift while you wait for a “turnaround” that never fully arrives.     Quote: “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.”  Interpretation: You lose money the boring way. Years of weak per-share returns. Pricing pressure forces discounting. Margins stay low.   Quote: “Operating return on sales (in %) … Actual 2025 … 2.8”  Interpretation: The business can run on thin margins. When margins are thin, small mistakes and small downturns hit equity hard.   Quote: “However, a further revision of the 2025 forecast for the Volkswagen Group in September 2025… initially put downward pressure on share prices.”  Interpretation: Forecast cuts happen. The market reacts. If the next few years keep forcing “revisions,” the stock can stay stuck.   Quote: “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.”   The cleanest way to lose money is a long margin squeeze during the EV transition. EV mix grows. Margins fall. The stock can stagnate for years even if unit sales hold up.   Quote: “Price pressure in established automotive markets for new and used vehicles as a result of high market saturation is a further risk… Individual manufacturers may respond by offering incentives… putting the entire sector under additional pressure.” Interpretation: You lose money if the market turns into a discount war. That hits pricing, residual values, and profits.       Where is the business structurally weak?                                                                                                    VW is structurally weak in three places: \-              Scale complexity. Too many brands, platforms, factories, and stakeholders. That makes change slow and expensive. \-              Cyclicality. Autos are a macro product. When rates are high, financing costs rise and demand falls. \-              China exposure. China is the toughest market now. Local EV makers are aggressive on price and speed. Even if VW sells units, it may not earn good margins.         Quote: “…delayed ramp-up of e-mobility…”  Interpretation: VW is in a forced transition, but timing is uncertain. Delays mean you keep spending while the payoff moves out.   Quote: “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.”  Interpretation: Software + EV scale-up is not guaranteed. If customers or infrastructure lag, VW still carries the cost base. Quote: “The automotive industry is facing a process of transformation with far-reaching changes. Electric drives, connected vehicles and autonomous driving are associated with both opportunities and risks…” Interpretation: VW is forced to spend heavily while the product and business model are shifting under it. That is structural. It is not a one-off issue.     Quote: “There is uncertainty regarding the widespread use of electric vehicles and the necessary availability of the required charging infrastructure.”      Interpretation: EV demand is not fully in VW’s control. If infrastructure and adoption lag, VW carries the cost anyway.   Quote: “\[China’s\] fast-growing e-mobility market… is already dominated by high-volume domestic manufacturers… competitive pressure from local manufacturers will generally increase further.” Interpretation: The world’s most important auto profit pool is structurally hostile. Local players have scale. Price pressure can become permanent.     What assumptions need to go right (and might not)?What could permanently impair earnings or cash flow?     A lot has to go right at the same time: \-              EV adoption must grow fast enough to replace ICE profit pools. \-              Battery costs and supply chains must stay stable. \-              VW must execute software and electrification without long delays. \-              The industry must avoid a multi-year discount war.     things that can cause lasting damage: \-              A long price war in Europe and China that resets industry margins lower. \-              Regulation that forces costly compliance, while consumers still resist price increases. \-              Geopolitics and trade barriers that raise costs or limit market access. \-              Product and software execution failures that hurt brand and residual values. \-              Legacy legal and reputational issues that keep draining cash and attention.       Quote: “As a consequence of the diesel issue, numerous judicial and regulatory proceedings were initiated in various countries…”  Interpretation: Dieselgate is not “ancient history.” Legal overhangs can keep draining cash and management attention.   Quote: “…Dr. Ing. h.c. F. Porsche AG (Porsche) resolved to realign its product strategy… market launch of certain all-electric vehicles is to be postponed… models with combustion engines are to be offered for longer…”  Interpretation: Even inside the group, EV product plans moved out. That is execution risk. It can create stranded costs and slower growth.   Quote: “…resulting in sustained pricing pressure and an increased use of sales incentives…”  Interpretation: The bull case assumes VW can defend price. But VW itself warns incentives may increase. That is the opposite of pricing power.   Quote: “The forecast is based on the assumption that semiconductor availability will be adequate.”  Interpretation: Even today, forecasts depend on supply assumptions. If supply chains tighten again, production and earnings can miss. Quote: “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.”   Interpretation: The bull case assumes VW can move fast like a tech company. That may not happen in a unionized, complex conglomerate.   Quote: “In Europe… more and more municipalities and cities will impose a driving ban on vehicles with combustion engines…”  Interpretation: The bull case assumes ICE cash flows fund the transition for long enough. Bans and regulation can shorten that runway.     Quote: “the possibility of material loss or damage not covered by the insured amounts or by provisions cannot be ruled out. This is, for instance, the case with regard to the legal risks assessed in connection with the diesel issue.” Interpretation: Diesel/legal tail risk is still alive. One adverse ruling can permanently raise costs and restrict strategy.     Quote: “In Germany, roughly 10 thousand individual lawsuits relating to various diesel engine types are currently pending…”  Interpretation: Ongoing litigation is a long-dated cash drain and management distraction. It can also trigger reputation and regulatory risk.     is the balance sheet a hidden risk?     VW needs sustained investment to compete in EVs and software. If earnings weaken and rates stay higher, the cost of funding rises. That can force hard choices: cut capex, cut dividends, sell assets, or accept weaker competitiveness.         Quote: “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.”  Quote: “Earnings before tax down overall at €6.1 (12.4) billion…”   Quote: “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.” Interpretation: In a credit shock or downgrade cycle, VW can face higher refinancing costs right when it needs massive EV capex.       Quote: “Financing opportunities can be hindered by… a worsening credit profile… or a downgrade or withdrawal of the credit rating.”    Interpretation: Ratings matter. If profitability weakens, the cost of capital rises. That can trap the equity.   Quote: “Under IAS 32, the hybrid notes… must be classified… as equity… IAS 32 only allows these hybrid notes to be classified as debt once the respective hybrid note is called… Equity and net liquidity… were reduced accordingly.” Interpretation: “Equity-like” financing can flip into debt-like pressure when called. Net liquidity can step down at awkward times.       Where could management hurt shareholders?       Piëch family holding company effectively controls VW’s voting power, so: A controlling family can prefer outcomes that protect: \-              long-term control, \-              family wealth structure, \-              group stability (jobs/factories), even if the best decision for minority shareholders would be more aggressive restructuring, divestments, or payouts.   Example types of tension: \-              keeping unprofitable capacity open longer, \-              avoiding actions that reduce control, \-              doing deals that are “good for the group” but not for VOW3 holders.   VW is also influenced by the State of Lower Saxony and labor representation. With a family control layer on top, you get a “multi-constituency” company: family state/politics unions/workers in hard times, the company may choose social/political stability over shareholder returns   VW has: ordinary shares (vote), preferred shares (VOW3: no vote), cross-holdings / listed subsidiaries (Porsche AG, etc.), holding company influence (Porsche SE) Reduced chance of “shareholder-friendly” moves   With a strong controller, you’re less likely to see: activist pressure forcing big changes, radical restructuring to maximize equity value, large buybacks if other stakeholders prefer cash to be kept in the system.             Quote: “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%.” Interpretation: Control is concentrated. Minority shareholders can’t force hard decisions.       Quote: “preferred shares… do not carry voting rights.” Interpretation: VOW3 holders have no vote. If governance choices dilute value, you mainly have “exit” not “voice.”   Quote: “Shareholders are not entitled to a dividend payment until it has been resolved by the Annual General Meeting.”  Quote: “Shareholders are not entitled to a dividend payment until it has been resolved by the Annual General Meeting.”                  Why might investors be fooling themselves?   Because the “cheap legacy champion” story is comforting. Investors may anchor to the old ICE era profits and assume they come back. But the industry has changed: EV competition is sharper, pricing power is weaker, and the cost base is heavy. “It will normalize” is not a plan.       Quote: “…delayed ramp-up of e-mobility…”  Interpretation: Investors may assume the EV transition is a smooth S-curve. VW flags delays. Delays usually mean higher costs and slower returns.   Quote: “…sustained pricing pressure… increased use of sales incentives…”  Interpretation: Investors may assume “pricing normalizes.” VW is telling you to expect the opposite. Quote: “the ramp-up of lower-margin electric vehicles” Interpretation: Investors may anchor to old profit levels from the ICE era. The mix shift can make those profits non-repeatable.   Quote: “Competitive pressures are also likely to remain high in the future.” Interpretation: Investors may assume “cycle mean-reversion.” VW is saying pressure could be persistent, not cyclical.     What evidence would prove this bear case right?     Quote: “financial result is significantly weaker… due to… lower-margin electric vehicles” Quote: “offering incentives… putting the entire sector under additional pressure” Quote: “competitive pressure from local manufacturers will generally increase further” Quote: “liquidity risk… unable to finance… on reasonable terms”       Full analysis     https://preview.redd.it/0hog5377q0ug1.png?width=836&format=png&auto=webp&s=011fd96e395073cd608be8cb9c9d80bf925d9262   Top competitors   |**Company**|**P/E (TTM)**|**Div yield**|**D/E ratio**|**Op margin (TTM)**|**Moat (my take)**| |:-|:-|:-|:-|:-|:-| |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%** |**Mod**|     https://preview.redd.it/96mwcl77q0ug1.png?width=803&format=png&auto=webp&s=fdb48725e35ac96040d8052daccea4ed9fb228b6   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 creates stranded cost.         EV technology Weak. Software behind Tesla, BYD. China EV sales fell 44% in 2025. Relies on Xpeng partnership.     Distribution network  [Strong.Global](http://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.           Bull case 12 months Restructuring delivers €10B cost savings ahead of schedule. China stabilizes in H2 2026. Xpeng models gain traction. Defense pivot narrative re-rates stock. Operating margin recovers to 5.5%+.     Bear case 12 months Union blocks restructuring again. China market share falls below 10%. Dividend cut forces yield investors to exit. Margin stays below 4%. Financial services stress from used car value declines   Here comes the magic   DCF valuation 5-year revenue projection (€B)     |Year|Revenue|Growth|Op margin|EBIT|NOPAT (25% tax)|FCF est.| |:-|:-|:-|:-|:-|:-|:-| |2025A|€321.9|\-0.9%|3.4%|€10.8|€8.1|€5.0| |2026E|€330.0|\+2.5%|4.5%|€14.9|€11.2|€8.0| |2027E|€345.2|\+4.6%|5.5%|€19.0|€14.2|€12.0| |2028E|€362.5|\+5.0%|6.5%|€23.6|€17.7|€16.0| |2029E|€378.8|\+4.5%|7.0%|€26.5|€19.9|€18.5| |2030E|€392.5|\+3.6%|7.5%|€29.4|€22.1|€20.5|   Key assumptions: Goodyear Forward restructuring saves €3B by 2027, €8B by 2030. China stabilizes at 10% share. Porsche and Audi hold premium margins. Defense pivot contributes minimal revenue (upside optionality only). Capex \~€15.5B/yr throughout.     WACC calculation Risk-free rate (German 10yr Bund)  3.0% Equity risk premium  5.5% Beta (5Y monthly)        1.05 Cost of equity                 8.78% Pre-tax cost of debt   3.5% After-tax cost of debt                 2.63% Target capital structure (E/D)               70% / 30% WACC estimate            7.0%   Exit multiple method 2030 FCF: €20.5B Exit multiple: 6.0x FCF Terminal value: €123B PV of TV at 7% WACC (5yr): €87.8B   Perpetuity growth method 2030 FCF: €20.5B Growth rate (g): 1.5% TV = €20.5B / (7% – 1.5%) = €373B PV of TV: €266B   Perpetuity method produces extreme sensitivity to g-rate. Exit multiple is more conservative and appropriate for a cyclical. I’ma  weight exit multiple 70%, perpetuity 30%.   DCF equity value bridge PV of FCF (2026–2030) @ 7%               €52.9B PV of terminal value (weighted avg)                 €141.7B Enterprise value (auto division)         €194.6B Add: financial services book value +€80.0B Add: Porsche AG stake (\~10.8%)      +€7.5B Less: auto net debt    -€13.2B Less: pension provisions        -€23.0B Less: minority interests           -€25.0B Equity value    €220.9B Shares outstanding   501M DCF fair value per share          €441   important caveat: VW's governance complexity, financial services opacity, and pension uncertainty mean DCF produces a wide range. This is a base-case bull scenario, not a likely near-term price target. The market discount to DCF reflects permanent governance and structural risk. This is not an error or aggressive assumption. Every major valuation metric (P/E, EV/EBITDA, PEG, price-to-book(0,24 and price to tangible book 0,46)) shows VW at extreme discount versus peers. The market is not missing this. It is deliberately applying a structural risk discount for governance inability to unlock value, China secular decline, and the real possibility that the restructuring gets watered down again. The DCF is a ceiling, not a price target. Sensitivity table — fair value per share (€) at different WACC and margin assumptions   https://preview.redd.it/1t7wx877q0ug1.png?width=779&format=png&auto=webp&s=5f584908545b8cd9a3e8ed527ceda45a8bde23ec       Green = above €400 (deeply undervalued vs current). Amber = €200-400 (moderately undervalued). Red = below €200 (barely undervalued given governance risk). Current price €86 is below ALL scenarios  (which tells you the market is applying a massive structural discount, not just a DCF disagreement)     Key assumptions that break the model |Assumption|Base case|Breaks if...| |:-|:-|:-| |Operating margin recovery|Reaches 7.5% by 2030|VW brand stays below 3% and drags group| |China stabilization|Holds 10% share from 2026|Falls below 8% — €1-2B annual profit hit| |Dividend maintained|€6.36 held through 2027|Cut forces yield-investor exodus, -20% price| |No pension shock|€23B stable|Rate decline adds €5-10B to liability| |Financial services resilience|Net loss ratio <0.5%|EV residual value collapse hits €313B asset base|       Seasonal and timing patterns     |Pattern|Signal|Strength| |:-|:-|:-| |Best months historically|Jan–Feb (rearmament narrative), Apr (post-earnings)|Moderate| |Worst months historically|Aug–Sep (summer Europe slowdown, China volume data)|Consistent| |Pre-earnings behavior|Stock tends to drift +3–5% in final 2 weeks before print|Weak signal| |Post-earnings reaction|High volatility — sold off after Q3 2024 even on beat. Management tone dominates.|Headline-driven| |Q4 reporting season|April print (Apr 30, 2026) — watch for restructuring savings disclosure|Catalyst| |Day-of-week bias|No statistically significant intraday pattern vs DAX index|N/A|     Macro correlation signals ECB rate decisions Positive when cutting EUR/CNY Meaningful — China JV profits in CNY German IFO business climate Correlated — high IFO = VW outperforms EU CO2 emission targets Headwind — fleet average fines risk US tariff escalation Negative — EV / parts import exposure Germany defense spending (€500B package) New positive catalyst — defense optionality Brent crude oil price Modest positive (ICE vehicle demand)   Statistical edge summary |Factor|Edge| |:-|:-| |P/E vs sector (6.7x vs 19.8x)|Stock trades at 66% discount to peer average P/E| |EV/EBITDA (3.77x vs sector 9.46x)|60% below industry median — extreme value signal| |DCF implied upside|Market trades at \~80% discount to intrinsic value| |Dividend yield (7.35%)|Top-quartile yield among global auto manufacturers| |PEG ratio (0.21)|Earnings forecast to recover; growth not priced in| |Defense re-rating potential|New catalyst with no prior analyst coverage| |5-yr stock performance|Persistent underperformer vs DAX — structural discount real| |Governance discount|No catalyst to unlock sum-of-parts value near term|     Defense & missiles turnaround thesis https://preview.redd.it/w5lvk477q0ug1.png?width=699&format=png&auto=webp&s=8fe258745d764f81922d62fa8ac8198660744303   First of all Volkswagen is in discussions with Israeli Rafael Advanced Defense Systems about converting the Osnabrück plant to produce Iron Dome components, specifically heavy trucks, launchers, and power generators. VW will not produce the missiles themselves. Yahoo Finance: The conversion would require minimal new investment and could be achieved within 12 to 18 months, but works council approval is the pivotal unknown. Yahoo Finance: This is brand new( it broke March 25-26 ) and street coverage is essentially zero. It is the single most interesting asymmetric catalyst on the stock right now.     Defense pivot  investment analysis   |Factor|Assessment|Impact| |:-|:-|:-| |Conversion cost|"Minimal new investment required", source familiar|Low capex barrier| |Timeline to production|12–18 months if approved|2027 earliest contribution| |VW's existing defense exposure|MAN-Rheinmetall JV makes military trucks|Not a cold start| |Market size (Iron Dome Europe)|Germany, Poland, Baltic states all evaluating Iron Dome purchases|Multi-country demand| |Works council obstacle|Labor unions have historically sensitive view of arms production|Critical execution risk| |ESG implications|Defense sector reclassification could improve ESG scores vs auto|Unlock institutional ESG buyers| |German government support|Berlin actively encouraging idle auto capacity for defense|Political tailwind| |Revenue potential|Iron Dome battery cost \~$100M+. VW captures component segment.|Meaningful but not transformative|     the defense thesis matters strategically?   Idle capacity problem solved VW has 5M units of stranded capacity. Converting one plant from a cost center into a revenue-generating defense supplier removes a dead-weight drag on margins and justifies keeping the workforce employed.   Europe's €500B rearmament Germany's historic defense spending package creates a decade-long demand wave. Companies with manufacturing capacity are being sought by defense primes. VW has the floor space, the workers, and the logistics expertise.   Re-rating optionality If VW converts even 2–3 plants to defense adjacent production, analysts may begin applying a conglomerate/defense premium to part of the enterprise. Rheinmetall is now larger than VW by market cap after +180% in one year.       Defense turnaround probability assessment |Scenario|Probability|Stock impact| |:-|:-|:-| |Osnabrück deal signed, works council approves|35%|\+8–15%| |Deal delayed, further defense discussions with others|40%|\+2–5%| |Works council blocks, plant sold or closed|25%|\-5 to -8%|         Pre-Earnings Brief     https://preview.redd.it/vckfe577q0ug1.png?width=1471&format=png&auto=webp&s=0b29bdcb9cc34804a0c70d59b56094a042d361fb       https://preview.redd.it/t1mdw577q0ug1.png?width=1472&format=png&auto=webp&s=150fbeb4bf69220edc73be1dd78a172f41983725     Key metrics Wall Street is watching on April 30 1. Adjusted operating margin (ex-special items) — Guidance: 4.0–5.5%. Anything below 4% in Q1 triggers a guide-lower risk. 2. Tariff cost in Q1: Full €2.5–3B guided for FY. Q1 is first clean quarter, no inventory buffer. Consensus assumes \~€650–750M quarterly drag. 3. China JV proportionate operating profit: Management guided this will be negative in 2026 due to NEV launches. How negative matters. FY2025 full year was only €958M. 4. Net automotive cash flow: Q4 FCF of €6.4B surprised positively. If Q1 shows continued generation above guidance pace, the market will react positively regardless of EPS. 5. Porsche / Audi margin recovery: Audi needs 4%+ margin and Porsche needs 6%+ for investors to believe the group recovery story. 6. Restructuring savings delivery: Zukunft Volkswagen targets €4B annual savings. Q1 is the first delivery quarter. 7. 2026 guidance reiteration vs. cut, Any narrowing toward the bottom of the 4.0–5.5% range is the single biggest downside catalyst.     VOW3 Eurex-listed options have historically priced ±5/9% moves around earnings. Elevated uncertainty on tariff quantification and wide guidance range suggests implied vol running above average into April 30. Actual move driven by management tone more than raw numbers. Q4 2025 showed +3–4% despite 43% EPS miss, cash flow here is the dominant market signal     Position: calls and cash secured puts   https://preview.redd.it/xdijd277q0ug1.jpg?width=1071&format=pjpg&auto=webp&s=f6ef9d7fb71e25ecb5cfd0ad18c4bb2dd9309605 And 1000 BYDDY shares for protection   Inspirations \-              50mg sertraline \-              [https://on.soundcloud.com/yXJIlM1wqLdSxAH66X](https://on.soundcloud.com/yXJIlM1wqLdSxAH66X)   \-              [https://open.substack.com/pub/financialosint/p/hidden-eu-defense-gem?utm\_campaign=post-expanded-share&utm\_medium=post%20viewer](https://open.substack.com/pub/financialosint/p/hidden-eu-defense-gem?utm_campaign=post-expanded-share&utm_medium=post%20viewer) may benjamin netanyahu and you guys bless my portfolio