Volkswagen Group must punch through crippling legacy issues that run much deeper than frequent clashes with labor leaders to have a hope of catching up with Tesla.
VW is in the midst of controversy embroiling CEO Herbert Diess who is urging workers to prepare for a deeper overhaul to remain competitive in the electric shift.
The automaker's internal spats, which frequently spill over into the public arena, are only the tip of a range of hurdles the automaker must tackle to move forward, according to Jefferies analysts.
Volkswagen has to "address complexity, legacy burdens and governance issues that are much deeper than unions," Jefferies analysts led by Philippe Houchois said.
"We do not see Tesla as an existential threat but owning VW now looks unattractive in spite of recurring hope of change," the analysts said in a note to investors on Monday.
Jefferies cut its recommendation for VW shares to 'underperform' from a previous 'buy' rating in a report. VW's preference shares traded 1.3 percent lower in Frankfurt, valuing the automaker at 125 billion euros ($145 billion).
VW pushed back its annual investment review by one month to December after Diess faced backlash from key stakeholders over plans for a faster overhaul that weighed deeper cutbacks.
This year's planning round "needs to deliver breakthroughs," Jefferies said.
VW's capital expenditure and development costs for 2 million battery-electric vehicles is about 40 percent more than comparable investments at Tesla.
"Diess' constant Tesla references have become counterproductive, highlighting vulnerabilities rather than imaginative solutions," Jefferies said.
VW's capital allocation "looks unfocused" with the acquisition of Navistar International Corp. adding very little to earnings.
Addressing legacy issues including 40 billion euros of unfunded pension liabilities might have been a better option, the report said.