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Volkswagen’s Strategic Move: Selling Italdesign to Fuel EV Dominance

Julian WestMonday, May 19, 2025 7:20 am ET

20min read

Volkswagen’s potential sale of its iconic Italian design firm, Italdesign, marks a pivotal shift toward a strategic asset reallocation strategy that prioritizes electric vehicle (EV) innovation and software-driven growth. By divesting a profitable but non-core asset, Volkswagen aims to free capital, streamline operations, and accelerate its EV ambitions—positioning itself to capitalize on a $1.5 trillion global EV market by 2030. This move is a masterstroke for investors seeking exposure to a reinvigorated automotive leader.

Why Divesting Italdesign Makes Strategic Sense

Italdesign, the design house behind icons like the first-generation Golf and BMW M1, has been a profitable entity for Volkswagen since its full acquisition in 2015. However, its role as a third-party design partner for non-Volkswagen brands—such as Chinese automakers—has become less critical to the group’s core EV and software priorities.

By selling Italdesign, Volkswagen will:
1. Liberate capital for high-growth EV projects, such as its new $5.8 billion joint venture with Rivian to develop next-gen EV architectures.
2. Focus resources on software innovation via its CARIAD subsidiary, which is already generating licensing revenue from automotive software stacks.
3. Improve operational efficiency, reducing fixed costs in a European market where declining demand and rising competition from Chinese rivals like BYD threaten margins.

The sale also addresses a balance sheet bottleneck: Volkswagen’s Q1 2025 operating margin dipped to 3.7%, far below its 6.5% 2026 target. Shifting focus to EVs, where margins are projected to improve as scale grows, is critical to meeting these targets.

Preserving Value Through Strategic Partnerships

Critics argue that losing Italdesign’s design legacy could weaken Volkswagen’s brand equity. However, the sale’s structure—targeting buyers like Chinese automakers or niche EV startups—ensures its expertise remains an asset. A Chinese buyer, for instance, could deepen Volkswagen’s ties to Asia’s EV boom, while a niche partner might leverage Italdesign’s legacy for limited-edition EVs, preserving its cultural cache.

Volkswagen has already signaled openness to such partnerships. Its 2023 “ACCELERATE” strategy emphasizes global alliances to reduce development costs, and its joint venture with Rivian exemplifies this approach. By retaining a licensing arrangement or minority stake, Volkswagen could maintain access to Italdesign’s design prowess while unlocking immediate liquidity.

The EV Opportunity: Why Now is the Time to Buy

Volkswagen’s EV portfolio is poised for breakout growth. Its ID. series has captured 15% of Europe’s BEV market, and the upcoming ID.3 Wolfsburg model—a 2025 flagship—aims to boost U.S. sales by 40% by 2027. Meanwhile, its PowerCo battery subsidiary is securing partnerships with Ford and QuantumScape for solid-state batteries, ensuring a competitive edge in range and cost.

The sale of Italdesign further solidifies this momentum. With proceeds potentially exceeding €1 billion, Volkswagen can:
- Double down on software development, where CARIAD’s Q1 2025 licensing revenue rose 33% year-over-year.
- Accelerate its shift to EV-only plants, such as the €460 million Wolfsburg site revamp for ID.3 production.
- Strengthen liquidity buffers to weather regulatory penalties (e.g., California’s emissions fines) and geopolitical risks.

Risks and Mitigations

Union backlash over job losses at Italdesign’s Turin headquarters is a concern, but Volkswagen’s track record of restructuring—such as its Brussels plant closure—suggests it can navigate this. Additionally, a buyer’s commitment to retaining local talent would mitigate cultural loss.

Conclusion: A “Buy” with Clear Upside

Volkswagen’s sale of Italdesign is not a retreat—it’s a strategic pivot to dominate the EV era. By divesting non-core assets, reallocating capital to high-margin EVs and software, and leveraging global partnerships, Volkswagen positions itself to reclaim its title as the world’s automotive leader.

Investors should act now: Volkswagen’s stock trades at just 12x forward earnings, well below peers like Tesla (45x) and Ford (20x), despite its superior EV execution. With Italdesign’s sale imminent and EV demand surging, this is a buy at current levels, with a 30%+ upside potential by 2026.

Recommendation: Buy Volkswagen AG (VOW3.GR) before market forces recognize this undervalued EV giant’s true potential.

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