Are the DAX's German Auto Stocks Revving Up?

Germany's DAX (DAXINDICES: ^DAX  ) lost some of its recent momentum this past week despite its strong gains over the past few months. The DAX lost around 0.2% over the past five days, putting an end to a run that's seen Germany's leading stock index pick up 4% over the past month and more than 7% over the past three.

Still, German stocks have resisted the worst of Europe's ongoing economic woes thanks to this country's strong business foundation and reliance on exports. Exports to Europe have lagged in 2013, but Germany's trade with rising nations like China have propelled the DAX up the charts from a slow start to the year to one of the market's better stories heading into the final two months.

Today, let's take a look at Germany's formidable auto stocks. Volkswagen (NASDAQOTH: VLKAY  ) and Daimler (NASDAQOTH: DDAIY  ) released sales results from the past month this week, but can these two German car giants keep investors happy?

VW rides China's road to profits
Volkswagen's been on a roll lately, commanding a dominant position as a leader of China's auto market and boosting its stock by more than 26% over the past six months. However, VW hit the brakes in October, as its U.S. sales fell 18% year over year. Overall, however, a source informed Reuters that VW's total sales tipped up slightly in October despite its pitfalls in the U.S. With markets like Europe and especially China affecting Volkswagen's performance the most in today's market, this company and stock can afford to take a minor hit in the American market and continue flying high.

Porsche 2013 Boxter. Source: Porsche North America.

That's exactly what Volkswagen did in its earnings report released earlier this week, as luxury brand Porsche revved up the carmaker's earnings past analyst projections. Porsche's earnings alone climbed 55% for the quarter and accounted for more than 20% of the company's total earnings. Porsche and fellow Volkswagen upscale brand Audi put VW into stronger competition with fellow German automakers Daimer and BMW (NASDAQOTH: BAMXF  ) , and if Volkswagen can continue growing these two brands strongly in future quarters, it will be in prime position to solidify its hold as Germany's top automaker.

Still, Volkswagen can't rely on Porsche alone to guide its future.The company's serious about its ambition of taking over the top spot in global auto sales by 2018, and it will need the Chinese auto market to continue growing at the pace it set last month, when China's passenger vehicle market's sales jumped 21%. VW managed to outsell its top competitor in China, General Motors (NYSE: GM  ) , in September, and leading GM in the long term there will be a cornerstone of VW's goal of global dominance.

Luxury rival BMW (NASDAQOTH: BAMXF  ) has also set its sight on China as its market of choice. BMW announced earlier this year that it's on pace for a record year of Chinese car sales, although its niche luxury market sees far fewer total sales than VW's breadth across the auto industry. Still, BMW posted 21% Chinese sales growth back in September, and if it can keep up double-digit growth through the rest of the year, this carmaker will be on pace to satisfy investors.

Like BMW, Daimler similarly posted 21% sales growth back in September out of China, and this company's surged behind its own luxury brands recently. Daimler's Mercedes-Benz unit grew sales by 14% over the third quarter to lead this company's turnaround. Daimler's struggled with sales and earnings recently, but with the third quarter a surprising success, it's found some momentum to build upon.

Don't expect Daimler to keep up with Volkswagen anytime soon: The company's still projecting lower operating earnings for the full year as compared to 2012, a far cry from VW's rocketing surge up the industry's charts. Still, if the Mercedes brand can find traction, Daimler will be able to point to growth opportunities for the future. Keep an eye on how this company performs in its October and November sales to see whether Daimler can return to form.

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9/17/2014 11:20 AM
^DAX $9671.09 Up +38.16 +0.40%
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