If you’ve read an FT article on German automakers over the past decade, chances are you’ve come across a quote from Arndt Ellinghorst, one of our go-to automotive analysts for all things VW, BMW and Daimler.

No more. After nearly a quarter of a century in the industry, most recently in Bernstein, Ellinghorst leaves journalists with empty deadlines. But before it took off into the sunset – we’ll talk about that later – we couldn’t pass up the opportunity to get some final predictions.

Ellinghorst’s overall assessment is depressing. Since graduating from Audi in the 1990s – and becoming a management trainee at VW – European auto stocks have, in his own words, become “the least valued species among all stocks listed in Europe. stock Exchange”.

“Over the past 20 years, their valuation has been depreciated by more than 60%,” says Ellinghorst. “Some of the best brands you can think of are estimated to go bankrupt in four to five years. ”

The price-to-equity ratio at BMW (which has been generating cash for years and is on track to post nearly € 10 billion in free cash flow and record earnings in 2021) which persists around 5x, while Tesla’s is in the middle three digits. It’s a similar picture at Daimler and VW, which has its structural issues but still houses the Audi and Porsche cash spinners.

Essentially, as Ellinghorst has long pointed out, the market believes the enterprise value of these historic companies “will reach zero in four or five years” – a startling estimate of a sector that is responsible for almost 30 percent. of all European R&D expenditure. Every euro of that spending, adds Arndt, “is valued at the lowest market capitalization of any industry. It’s really traumatic ”.

At the same time, the market has allocated more than $ 2 billion to new mobility players, including Rivian and Nio. “Capital markets agree, tech companies agree, venture capitalists agree that the future of mobility is amazing,” says Ellinghorst. “But unfortunately, the market has also decided that traditional brands will not be one of them.”

So far so overwhelming. The big question, however, is why.

“In the United States, people saw these companies as just metal benders,” says Ellinghorst, while in Europe, especially Germany, “the market felt that the influence of unions, councils Co-determined supervisors make these companies too slow to restructure. The recent drama in Wolfsburg has done little to dispel this notion.

But Ellinghorst also attributes a large part of the blame to those in the boardrooms, who “have treated their product with disrespect”. For years, he complained that the industry implemented an “overly volume-centric business model,” a “stack-em-high” strategy that led to high fixed costs and cut-offs. higher profitability, both difficult to reduce in a cyclical environment. slow-down.

Then came Tesla, and the executives (with the honorable exception of BMW, a pioneer who simply deployed the technology too early) were “not entirely convinced that they could shift their brand equity into the electric world”, until Dieselgate and regulations force their hand. he said, recalling conversations with complacent German managers.

The VW brand has also recreated its complexity in the world of electric vehicles, launching several similar models instead of focusing on one or two groundbreaking products. VW, which will sell far less than the 600,000 electric vehicles it hoped to sell this year, in part due to a lack of semiconductors, “was not convincing, both in terms of technical performance and volume. “.

Even the goose that lays the golden eggs that is China, the biggest market for all German manufacturers, has never been a sustainable source of profit, he says.

“The financial market has always looked at these auto shows in China and said, ‘Guys, it’s great that you are making so much money in China, but you won’t keep it for very long. “Maybe it’s 10 years, maybe it’s 20 years, but the Chinese are using you to develop their own industry.”

This is exactly what seems to be happening. VW made 5.2 billion euros from its Chinese joint ventures in 2015, but will earn around 2.7 billion euros this year, despite the growing market. The company is struggling to compete with new national entrants.

Given these headwinds, what is, I ask, the bull’s case for German auto power plants?

Ellinghorst’s first two suggestions are not surprising. Drastically reduce spending on heat engines and gasoline / diesel models, and be more rigorous on prices, without which “all restructuring is worthless”.

His third recommendation, however, did not come from an Excel spreadsheet. “The product has to be exciting and emotional,” he says. “The Porsche Taycan (which sells better than the 911) is probably the best example. This is the only example to date.

Notably absent from his bull case is the software, I would point out.

German manufacturers are keen to stress that their future is technological. “Software will be THE differentiator in deciding Volkswagen’s success in the NEWAUTO world,” VW boss Diess told an attentive LinkedIn audience earlier this month.

But while software will play a role in improving prices, autonomous driving and over-the-air updates, Ellinghorst is less convinced that there is a “transformational revenue stream from the sale of new software services” .

Ellinghorst leaves the stage with some of her wishlist items checked. While German automakers seemed even cheaper over the past 18 months, Daimler has finally divested its truck unit, and Mercedes, having realized amid the supply chain crisis that it can earn much more money. he money by selling fewer cars is among those who have given up chasing volume.

But despite all of his notes over the years, his own direction of travel is perhaps his most revealing analysis. Ellinghorst to join data science company QuantCo. Among other things, it uses algorithms to help automakers improve their prices.