The VW scandal is bad news for Tesla – but great news for electric cars

VW stands to be the biggest winnner in the switch to electric cars

I’m a huge believer in the power of adversity – what doesn’t kill you makes you stronger and all that.

Without adversity, genetic mutation stops – and that’s disastrous.

Could Volkswagen’s recent bout of adversity – “dieselgate” – be a case in point? Some analysts think so. The episode has forced radical change at VW. And this is one adaptation that could prove very profitable for those with the guts to know how to play it.

This week marked a major shift in gear for VW. Recognising that diesel will never be truly green, it’s brought forward plans to electrify millions of vehicles.

This is huge. At the Frankfurt Motor Show this month, VW had already said it was set to bring 20 electric vehicles (EVs) and plug-in hybrid models to market over the next three years. But this week, under the guidance of new chief executive Matthias Muller, it announced it will ready its hugely important MQB platform for EVs.

What does that mean? Well, over recent decades VW has spent billions on MQB. That stands for Modularer Querbaukasten – an integrated production line – producing everything from Skodas to Golfs, from Seats and Audis.

This production line is capable of delivering diesel or petrol cars. And soon, it will be able to deliver EVs too. Last year, VW produced about two million cars through its MQB platform. But come 2018, it plans to increase that to seven million a year. Far from going bust (as some analysts postulate), these guys are gearing up for growth.

When you recall that VW’s new boss was the head of Porsche, the refocus toward electric cars becomes obvious. Under Muller’s guidance, Porsche was already heading well down the route of electrification. The Porsche Mission E, unveiled at the Frankfurt show a few weeks ago, was always supposed to be a sign of things to come for the VW group.

The strategy is exactly the same as that adopted by electric car pioneer Tesla. Tesla’s first model was a roadster. After that, its larger sports car, the Model S was released. This year, it released its Model X, a sports utility vehicle (SUV) – a premium car, but practical for family use too. You’ll remember it if you’ve seen it, it’s the one with the falcon-wing rear doors.

As of March next year, Tesla will start taking orders for its mass-market vehicle, the Model 3. Tesla’s equivalent to Ford’s Model T – the first truly affordable mass-market electric car.

So Porsche was always going to be VW’s stepping-stone towards mainstream electric vehicles. It’s just that it’s all going to happen a whole lot quicker now.

How you can profit from VW’s hard times

VW can adapt quickly to a world moving away from diesel. It may surprise you to learn that VW’s research and development budget is some 65% larger than Fiat, Renault and Peugeot’s combined.

This is precisely why some of the smarter industry analysts reckon that the biggest winner from a global lurch away from diesels could very well be VW itself. They can re-tool the MQB quickly, and they’ve certainly got the R&D budget (as well as plenty of existing technology) to bring top battery technology into being. For instance, the Mission E can be 80% charged in less than 15 minutes – that’s some going.

If you thought EV pioneer Tesla would have benefited from the diesel scandal, you’d be wrong. As the ramifications of dieselgate have developed, so Tesla’s share price has slumped from well over $250 to $215 now. I strongly suspect that this is fallout from the competition arriving on Tesla’s doorstep much sooner than anticipated.

I’ve been following (and investing in) the EV story for quite some time now. And though I love Tesla as a company, I have never once suggested anyone invest in it. This is precisely why. Tesla is ultimately a very small fish, swimming in an extremely large pond.

My investment case has been consistent. Invest in the key components necessary for EV batteries: lithium, cobalt and graphite are commodities with an extremely bright future. And this future has just been brought forward.

I’ve written about it regularly for MoneyWeek magazine – I updated my favourite tips in the sector a month or so ago.

(If you’re not already a subscriber you can sign up here, and get access to the story online.)

What doesn’t kill you, makes you stronger – it’s always worth bearing in mind when adversity hits.

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