UBS Teardown Report Gives Volkswagen ID.3 High Marks
Most of us are familiar with Sandy Munro, the fellow who has made a livelihood out of tearing things apart to find out how they are put together. Let’s say company F or company G wants to know how company T makes its cars so they can apply that knowledge to their own products. Munro and his clinicians document each part, identify who made it, estimate how much it cost, and add up the results to determine whether the car they are examining can be made for a price that will create profits.
In many quarters, it is called “reverse engineering” and it is common in every industry. Industrial espionage means getting inside information that is proprietary in nature — what is often called trade secrets or intellectual property. But once a product is on sale, there is no prohibition against buying it and tearing it down to see how it is made. Munro and his crew are experts at doing so and make their living selling their findings to other companies. Good for them. The first rule of free enterprise is “find a need and fill it.”
UBS Group, the international banking giant, does much the same thing but with more of a focus on European products and manufacturers. Its latest endeavor involved taking apart the ID.3 electric car from Volkswagen to see how it is put together and what makes it tick. The result? Citing a report by Bloomberg, Inside EVs says UBS found the ID.3 to be “the most credible EV effort by any legacy auto company so far.”
Comparing the ID.3 to cars made by Tesla, UBS found the Volkswagen MEB platform — the basis for most of the latest electric cars from Volkswagen Group — is a fully cost competitive platform that has best in class energy density and efficiency. After its analysis, UBS says Volkswagen should be able to earn a 15% profit on MEB-based cars, the same profit margin it has enjoyed for many years with its bestselling Golf.
Based on that report, UBS raised its target price for Volkswagen shares from €200 to €300 and the stock climbed 5% on Wednesday. Herbert Diess, CEO of Volkswagen Group was understandably pleased.
Analysts from @UBSschweiz tore down our ID.3 – and raised their price target by 50 percent to 300 euros afterwards. The market has been waiting for our #BEV-ramp-up and wanted to see some proof points, so here we are…(2/2)
— Herbert Diess (@Herbert_Diess) March 3, 2021
Elon Musk has been exhorting other manufacturers to build compelling electric cars for several years. The UBS report indicates Volkswagen may be the first legacy automaker to do so while still making money. There are plenty of startups around the world who are trying to do the same thing, but they do not have the baggage that comes with needing to continue selling conventional gasoline- and diesel-powered vehicles to finance their transition to electrics. On the other hand, they also don’t have the decades of manufacturing experience needed to build high quality cars and trucks successfully.
Cars today are more like computers on wheels than ever. Volkswagen knows how to design and build cars, but getting the software right was a challenge, one that it has not yet fully conquered. But thanks to the over the air updates pioneered by Tesla, it is getting there. No one is going to build electric cars if they are going to lose money. Volkswagen has proven it is possible to build them profitably, which is a huge step forward in the EV revolution and its many advocates.