VW’s Furious Rally Fueled by Surge in U.S. Trading Volume
(Bloomberg) -- Volkswagen AG shares continued their meteoric rise as U.S. retail investors seized on the stock amid rapid-fire announcements on the company’s efforts to rival Tesla Inc. in electric vehicles.
The German carmaker’s common stock soared as much as 16% while its preference shares climbed more than 9% before selling off in Frankfurt’s afternoon trading. VW’s market value exceeded 150 billion euros ($180 billion) early in the session after overtaking SAP SE as Germany’s most valuable public company.
Retail investor interest is likely driving a massive run-up in trading volume for the automaker’s American depositary receipts, Barclays analysts led by Kai Mueller wrote in a report, pointing to a spike in VW-related Google searches, positive Twitter posts and recent news coverage. VW staged back-to-back briefings earlier this week on plans to build six battery factories and sell more EVs than Tesla no later than 2025.
Overnight moves in the ADRs are being “hedged out” by market makers buying the underlying common stock in Germany, driving significant demand and volume for those shares, Mueller said.
“This leads to a squeeze of the VW ordinary shares, a story we have seen before,” he wrote, an apparent reference to 2008, when Porsche drove up the price of VW in a failed attempted takeover.
The ADRs sold off Thursday after surging all week. The German financial watchdog BaFin is monitoring trading in VW shares, a spokeswoman told Bloomberg News.
Two types of VW ADRs trade in the U.S. -- one is linked to the company’s common stock in Germany, and the other is tied to its preference shares. The common ADRs jumped as much as 49% on Wednesday, with volume surging to more than 15 times the three-month daily average during the session.
“Some less experienced investors might not even be aware of the differences in share classes,” Bernstein analyst Arndt Ellinghorst wrote in report Wednesday.
VW’s common stock is much less liquid than VW’s preference shares because three holders -- the Porsche and Piech family, the German state of Lower Saxony and Qatar -- hold about 90% of it. The small supply available to U.S. retail investors has contributed to driving up the common stock, Mueller said.
“This could mean that the preference shares also continue to move much higher from here unless we see a material reversal in ADRs,” he wrote.
VW has long had plans to develop the industry’s broadest lineup of battery-powered vehicles. Chief Executive Officer Herbert Diess has more aggressively gotten the message out recently, creating momentum after a series of bullish reports earlier this month on the company’s first dedicated EV for the mass market, the ID.3 hatchback.
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Investors may have been too harsh on VW in the past year, focusing on issues including the ID.3’s delayed launch, the company missing an emissions target and Diess’s job security, according to JPMorgan analysts led by Jose Asumendi. The CEO stayed on after a weeks-long conflict with key stakeholders late last year and has since expanded VW’s electric push, turning the company into “a serious contender to Tesla,” the analysts wrote in a report.
VW’s largest shareholder, the Porsche and Piech family’s holding firm Porsche SE, has its own listing in Frankfurt. Though its only asset is its majority holding of VW common shares, that stock’s blistering rally has far outpaced Porsche SE’s, leading to a valuation discount of more than 50%.
Porsche SE “is clearly the hidden value,” Barclays’ Mueller said, calculating an implied upside of more than 70% for the stock based on the value of its VW stake. The discount is “sizable and fundamentally hard to explain,” Bernstein’s Ellinghorst wrote.
Traders may be shying away from exploiting the valuation gap because of painful memories of what happened more than a dozen years ago, according to Kari Olsen, an event-driven sales trader at Forte Securities.
“Relative value traders are not keen to get involved shorting VW common shares, which is the line Porsche SE holds,” Olsen said. “The recent spike is reminding the investment community of what happened during the 2008 short squeeze.”
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