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(Bloomberg) – The potential listing of Porsche by Volkswagen AG would be a strategic turning point and indicate that the unprecedented upheaval in the auto industry is only just beginning.
The German industrial giant and other incumbents have weathered a global pandemic much better than initially feared, recording robust profits and strong cash flow. Even still, their ratings are stubbornly low compared to Tesla Inc.
No automotive CEO has lamented this as openly and frequently as Herbert Diess, who regularly makes headlines by stressing the urgency with which VW must act to transform. Exploring a Porsche list is a nod to this need and will be a kind of litmus test for its future.
“There is a loss of power due to the low valuation, which Diess has complained about in the past, and that is a major drawback,” said Juergen Pieper, analyst at Bankhaus Metzler. “An IPO of Porsche would be the silver bullet.”
VW’s preferred shares rose 1% shortly after the start of regular trading in Frankfurt.
The appeal of Porsche is evident to investors. Bloomberg Intelligence analyst Michael Dean estimates the 911 maker could support a valuation of 110 billion euros ($ 133 billion) in an initial public offering, or about 20 billion euros more that investors are evaluating VW at the moment.
But reaching such a deal won’t be straightforward due to the institutional hurdles that have prevented further attempts by Diess, 62, to shake up VW since he became CEO in 2018. Major decisions must be approved by the company . Dominant and often at odds shareholders, led by the Porsche and Piech family and the German state of Lower Saxony, which tends to side with powerful unions.
‘Old-Auto’
What Tesla’s meteoric rise has done, however, is send a clear signal to Diess that extreme measures must be taken to get financial markets to turn to “old” companies. VW’s review of options for Porsche follows Daimler AG’s decision to divest its truck unit after years of management opposition to such a move. Its shares have risen 13% since then and are hovering around a three-year high.
Even after the increase in spinoffs, Daimler is worth around $ 86 billion, which almost matches the valuation of NIO Inc., which brought in about a tenth of revenue last year.
Investors have a low opinion of the ability of automakers to keep pace with new entrants without being hampered by sprawling production networks centering on combustion engines. Ford Motor Co. highlighted that reality this week by announcing its intention to move from selling zero electric vehicles last year in Europe to offering only fully electric passenger cars by the end of the decade.
It is clear that VW will spare no expense in its efforts to catch up with Tesla, having budgeted a larger share of its € 150 billion spending budget for investment in electric cars and software over the past five years. coming years. As strong as the current earnings are, they will be strained by all the costs associated with withdrawing from certain operations.
“VW’s balance sheet may not be able to ensure both accelerated investments in electric and autonomous vehicles and fund an accelerated reduction in legacy problems,” Philippe Houchois, analyst at Jefferies, said in a note.
Like Ferrari
Porsche’s listing proceeds could go a long way, as its brand’s power and luxury cachet are on par with Ferrari NV, one of the few recent success stories among mainstream automakers. Fiat Chrysler separated the supercar maker in 2015, and shares have climbed 282% since the IPO.
The Porsche 911 alone is likely to exceed Ferrari’s earnings before interest, taxes, depreciation and amortization, according to Bloomberg Intelligence analyst Dean. It also has a strong electric story to tell, with the Taycan model which debuted in 2019 portending a jump to around half of battery-powered sales by 2025.
Porsche will add a more spacious version of the Taycan to the lineup later this year, and then roll out a battery-powered version of the Macan crossover in 2022 which will be based on a new dedicated EV platform in co-development with Audi.
Nothing new
The idea of a separate listing for Porsche is not in itself new. Three years ago, Lutz Meschke, CFO of the sports car maker, pointed out the potential for value during an informal briefing at a research and development center outside of Stuttgart, to be reprimanded by headquarters from VW.
Opposition within VW’s boardroom appears to have eased following an industry transformation that many have predicted for years, but is now gaining ground at an unprecedented rate. About 10% of passenger cars purchased in Europe in the fourth quarter were battery electric. In December, the share was around 14%.
Still, a Porsche list is anything but certain. VW undertook an asset review half a decade ago, aiming at more decentralized and agile reporting lines and simplifying its unwieldy conglomerate structure. The results of reform efforts have been modest so far, with attempts to separate niche brands such as Ducati and Lamborghini undermined by key stakeholders. The scaled-down 2019 IPO of the Traton SE truck unit almost derailed by internal feuds.
“You would think the Italian company would have been an easier sell-off internally, and the fact that this didn’t happen raises the question of why Porsche would have happened,” RBC Capital analyst Tom Narayan said by phone. “It’s frustrating for traditional automakers. Tesla can use the stock currency to fund his growth and thrive in his garden. “
(Updates with VW shares traded in the fifth paragraph.)
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