Bankers Love Their Porsche 911s. So Let Them Buy Shares
(Bloomberg Opinion) -- For as long as I’ve been writing about Volkswagen AG, the German carmaker’s lousy stock-market valuation has been a topic of conversation that doesn’t lead anywhere.
In a normal year VW sells more than 10 million vehicles and has a stable of prestige brands that would be the envy of any motoring enthusiast. Yet its market capitalization is just 90 billion euros ($109 billion), a fraction of Tesla Inc.’s.
VW shareholders have become resigned to nothing much changing: The Porsche/Piech families, the State of Lower Saxony and the trade unions who together call the shots at VW are skeptical of radical moves. They listed a small stake in truck unit Traton SE but couldn’t bring themselves to part with Italian motorbike brand Ducati, for example.
But on Thursday, at last, some hope. VW is considering a separate listing of its Porsche car unit that could take place as soon as 2022, sources told Bloomberg News. The company would keep a majority stake and use any proceeds for investments. The spin-off idea is a no-brainer and one I’ve been advocating for a while.
VW’s Chief Executive Officer Herbert Diess is a forceful personality and one who’s far more attuned with what the capital markets want than his predecessors. He’s also a careful observer of what’s going on in Silicon Valley, particularly as regards Tesla and Elon Musk. I suspect he’s had some success in impressing on the power players in VW’s Wolfsburg base that the status quo is no longer an option.
Last year Tesla raised about $12 billion by selling stock, funds that it can use to build factories and new models — it’s building one such plant near Berlin, effectively in VW’s backyard. In other words it has weaponized its soaring share price to stunning effect (whatever you think about the sanity of its eyewatering valuation).
VW isn’t short of funds but its cash must be generated the old-fashioned way: from selling cars. This means it has to control costs carefully. Even VW’s worker representatives can surely be persuaded that it would be far better if their company could sell a bunch of cheap stock instead.
A Porsche listing is much simpler for VW to pull off than a separation of its electric-vehicle activities, which are spread across multiple brands. Ferrari NV’s successful listing shows there’s plenty of investor demand for profitable premium car companies with a rich racing heritage.
While Porsche’s margins aren’t quite as stellar as Ferrari’s, in 2019 it supplied the VW group with a more than ample 4.2 billion euros of operating profit. Finance types still love their Porsche 911s and, unlike Ferrari, Porsche is comparatively well advanced in electric vehicles — thanks to the Taycan.
All of this should allow it to secure a princely valuation. Ferrari trades on about 32 times its expected operating profit. Even on a more modest 20 times earnings, Porsche’s value as a separately listed company might approach what the entire VW group is worth today.
Will it actually happen? The wheels spin slowly in VW but I’m less skeptical about the chances than I once was. Corporate Germany appears to be waking from its slumber. Daimler AG is rebranding itself as Mercedes-Benz and will spin off its trucks unit to try to get a better valuation. If Mercedes can consider such real change, so can VW.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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