Not sure how familiar everyone is with Rheinmetall (I certainly wasn’t until a few days ago). However, this stock appears to be quite the beneficiary of Germany’s rekindling attraction to defence. Although it’s a completely different beast, the share price looks to have gone “Nvidia” recently and blasted off. I haven’t done any analysis on this company but simply thought it interesting to preface with, given geopolitical events.

Anyway, my thesis relates to a different company - Volkswagen. Although potentially quite “out there”, I propose that this could be a decent value play. The caveat is that it’s a bit of a grim thesis.

Now, I did take a passing look at Volkswagen maybe a year or two ago. Since then, the share price seems to have dipped down about 20% only to recover to where it is today - going nowhere overall. If I’m at least in the ball park, that means the PE got down to near about 3ish, which can’t really be true, right? Admittedly, I’m not wholly sure of the precision of their data, but simply Wall Street shows a price to book of about 0.3. Even if somewhat off, that’s still pretty cheap, no? 

I was tempted to buy when I first took a look, primarily because of the dividend and how gobsmackingly cheap it seemed, but decided against it because, realistically, if you factor only the recent engines of growth (domestic automobiles) then this business seems a bit “meh”. The debt appears to be an issue and the industry itself is pretty saturated with all sorts of competition, etc, whatever. I threw it in the too-hard-basket.

Take the starting point (a potentially rather cheap business) and incorporate a recently unpalatable growth prospect - war. 

I am aware that the topic is rather insensitive, and I do apologise, however, it would appear to me that Volkswagen is a relatively inexpensive business that may or may not have some potential which the market hasn't really factored in yet. To be fair, the notion of any form of defence transition is really only speculation, but I could very well see a future where this may occur.

I would imagine the fit-out costs for such a transition may be high, but Volkswagen’s manufacturing facilities already exist (it’s not a start-from-scratch situation).

Of course, there are no “deals” or anything to support this, however, one can see Germany, looking to ramp up military productivity and Volkswagen, running facilities at lower capacity, as a potential marriage.

Volkswagen’s CEO, Oliver Blume, recently made comments regarding such: https://m.economictimes.com/news/international/business/its-car-profits-down-volkswagen-has-a-new-idea-tanks/amp_articleshow/118984264.cms

I missed these comments completely and am therefore making this post to see if anyone has an opinion on Volkswagen (whether current or historical) because European automakers are completely outside anything I’ve been comfortable to invest in.

Ultimately, I probably won’t be buying shares. However, if you A) entertain the notion of even small-scale military component/automobile production and B) consider this company to be relatively undervalued, then could there be a potential long-term opportunity? Considering this business seems rather unloved, it’s potentially a decent asymmetrical bet. After all, it wouldn’t be the first time this company pivoted toward militaristic-style production.