UBS upgrades Volkswagen to "neutral," raises price target to €105

Investing.com -- Volkswagen (ETR:VOWG_p) has been upgraded to a "neutral" rating by UBS Global Research in a note dated Monday, with its price target raised to €105 from the previous €75. 

The revision is based on a combination of macroeconomic and company-specific factors that suggest a more stable outlook for the German automaker, despite ongoing challenges.

One of the key drivers behind the upgrade is Volkswagen’s position within the broader recovery of the German automotive industry. 

As one of the leading manufacturers in the country, the company stands to benefit from improving economic conditions and a more favorable production environment. 

The reassessment of Volkswagen’s prospects also factors in a revised outlook for 2025 earnings, where some previously anticipated headwinds, particularly related to EU CO2 regulations, appear to be less severe than expected. 

UBS has consequently raised its 2025 operating profit estimate by 14%, excluding any potential impact from US or EU tariffs.

The company’s decision to scale back its five-year investment plan from €180 billion to €165 billion is another element that has contributed to the more optimistic view. 

This move signals a stronger commitment to financial discipline, particularly in areas such as software and battery technology, where excessive spending has been a concern.

The reduction in capital expenditures is expected to improve free cash flow, which UBS projects could reach €8 billion by 2027.

Despite the improved outlook, UBS has stopped short of issuing a more bullish rating. Concerns remain about Volkswagen’s operations in China, where the company expects a turnaround only by 2026 with the launch of next-generation products. 

Additionally, questions persist over the viability of its strategy for entry-level battery electric vehicles, as well as its focus on the US market, where its EV-centric approach may not align with current demand trends.

Volkswagen’s valuation remains relatively modest in comparison to peers, trading at approximately five times its estimated 2025 earnings. 

The company’s dividend yield stands at around 6%, but UBS does not expect any significant increases in shareholder returns beyond the existing payout ratio. 

While there is some room for multiple expansion, particularly in the context of a broader recovery in European auto stocks, Volkswagen’s prospects continue to be tempered by structural challenges in key markets.