Text | Karakush
Porsche may be listed independently.
In the face of recent leaks of information from various sources, the Volkswagen Group finally issued a statement confirming that it is in an in-depth discussion of the framework agreement with its largest shareholder, Porsche Holdings, although it will eventually need to be approved by the group management committee and the supervisory board.
Capital markets are already agitated. Porsche is one of the most lucrative car brands in the world, but its value has been sandwiched between the Volkswagen Group and has not been fully reflected. Volkswagen's market capitalization is currently a mediocre 112 billion euros (about $125.6 billion); Tesla, the first car company with a market capitalization, is about $820 billion.
A combination of analysts estimates that Porsche's valuation could be between 60 billion and 85 billion euros, and as high as 90 billion to 110 billion euros, almost rebuilding a parent company. If successfully listed, it is possible to set a new IPO record in automotive history.
Interestingly, for many years, the capital market has coveted this high-quality target, and the voice has been high, but the influence of institutional investors on the public is very limited, and Wolfsburg has always taken a firm stance and refused to publicly raise shares. From the perspective of external conditions, the current Ukrainian-Russian war coupled with the interest rate hike in the financial market is not an ideal time to go public.
The turning point may indicate that this is not a no-no-no, and the purpose is naturally to raise funds for intelligent and electrification transformation. Porsche itself is not short of money, but more to provide new financing channels for the group.
The Volkswagen Group has an ambitious blueprint: to achieve zero emissions of almost 100% of new cars in major markets by 2030 and complete carbon neutrality by 2050. Volkswagen expects to spend €73 billion on technology development for the period 2021-2025, accounting for 50% of the total investment.
Where does the money come from? Volkswagen's shareholder structure is complex and it is unable to raise new equity freely like Tesla, so it relies heavily on cash flow from car sales and the issuance of bonds, and because of its low valuation, it receives very limited help from the capital markets.
Porsche can leverage the scale of capital that the public cannot leverage.
Porsche logic
First, profitability based on unpretentious and boring.
Porsche has maintained a high level of profitability with a return on sales of more than 15%. Its sales volume is generally less than 3% of the group's, but before the epidemic, the operating margin was about twice that of the Volkswagen brand passenger cars, and the profit contribution could reach a quarter or even a third of the group's total profit.
One reference in the industry is Ferrari. Ferrari, now part of the Stellantis Group, was spun off from FCA in 2015 and has more than quadrupled its share price to date. It sold 11,155 units last year, while revenues reached 4.27 billion euros, with an adjusted EBITDA margin of 35.9 percent and an adjusted EBITDA margin of 25.2 percent.
This fundamental is put on the capital market, and the price-earnings ratio reaches 40 times; in contrast, the price-earnings ratio of Volkswagen Group is about 6 times, and Tesla's price-to-earnings ratio is about 163 times.
Although Tesla may still be at the level of "traditional car companies", the relative Volkswagen clearly reflects a logic different from ordinary cars. In addition to the automotive sector, Ferrari is also often placed in the luxury sector for scrutiny. Its widest economic moat is thus not in technology, but in the truly wealthy high-net-worth individuals, especially as emerging countries adjust their populations, and their breadth is growing every year.
This has supported Ferrari's steady growth, pricing power, and high profitability throughout the economic cycle, and to some extent even resilience to recessions, such as the epidemic, when the luxury sector rebounded to pre-pandemic levels last year, with luxury stocks up an average of 42%. Ferrari expects profits to still grow by more than 20 percent this year.
Similarly, Porsche enjoys a gorgeous price, crowd and brand reputation, and investors expect similarly from it, especially since its annual sales volume of 300,000 is much larger.
The risk may lie in an overly devastating international economic blow, such as the 2008 financial crisis.
At that time, Wall Street first collapsed and caused Porsche to lose money in the United States; after Porsche Holdings was trying to acquire Volkswagen, it had applied for more than 10 billion euros of bank credit, and the bank demanded repayment because of the market downturn. Extremely poor liquidity is about to go bankrupt, and Porsche Holdings has to turn to Volkswagen for help, and the Porsche brand is used as a condition for assistance to be acquired by Volkswagen.
Of course, such a full-line fiasco is almost impossible to replicate. Today Porsche's main business is very stable, as China has been its largest single market in the world for seven consecutive years, and last year Porsche China delivered more than 95,000 vehicles, accounting for nearly a third of the global business. We must not believe that China's rich people, but also believe that China's economy can continue to create a new rich population. (Poor Smile .jpg)
Second, it is based on the imagination of electrification.
The reference is still Ferrari. Last year, Morgan Stanley analysts suggested that the "most bullish electric car stock" was Ferrari, not Tesla — at a time when Tesla's market capitalization exceeded $1 trillion.
The logic goes like this: Ferrari has a market capitalization of about $60 billion, yet "hardly gives any value to its electric vehicle business." Ferrari expects to start selling electric vehicles in 2025. That is to say, the "optimism" is all on the imagination that Ferrari dry electric vehicles can certainly do well.
Damo expects Ferrari's electric vehicles to account for more than 30% by 2030. Ferrari's access to investment capital, a two-year backlog of orders, and ultra-luxury pricing power have shaped almost every electric powerhouse on the market.
In contrast, porsche is well founded.
Its goal is more radical, to achieve all-electric (except for the 911) by 2030. This is a bit faster than the group's overall timeline, and as an independent entity, it may unlock greater value potential.
It has a realistic proof that its electric car Taycan sold more than 7,300 units in China last year, as an average price of one million models, the performance of no one is left behind, even if looking to other market segments, very few traditional car brands can achieve similar market success in the field of electric vehicles.
The situation of only one product will soon improve, and the follow-up increment has a clear plan, such as the release of The Macan EV next year, the next generation of pure electric 718 Boxster and Cayman are also in preparation, it is reported that it will be based on the Volkswagen PPE platform.
It is difficult to say what kind of product advantage they can maintain - but Porsche has always been a brand with market acumen even greater than its own technology, it has taken the lead in launching SUVs and electric vehicles in the field of luxury cars, ignoring various criticisms, twice accurately stepping on the air outlet, expanding sales scale while always maintaining pricing without collapse. This may be its more core competitiveness.
Some fluttering worries
Because the plan was not confirmed, the crowd was excited and worried.
First, there is the fear that out of conservative inertia, Volkswagen may decide to sell a relatively small stake, which may dampen Porsche's valuation potential. Due to insufficient liquidity, controlling shareholders are not always in line with the interests of the capital market, so the shares in such IPOs are often discounted.
For example, in 2019, Volkswagen spun off and listed its trucking division, Tratton SE, selling only 10% of the shares, and so far, Tratton's stock price is lower than the IPO issue price, and it has not had any obvious impact on Volkswagen's valuation after the listing.
Of course, the two are not comparable, and Porsche is a more attractive asset. According to the Wall Street Journal, Volkswagen may take a 25% stake to raise 23 billion to 27.5 billion euros of new capital.
Second, there is the fear of loss of income. Volkswagen generates €15 billion a year in free cash flow and has repeatedly claimed that it has enough money to support its current transformation plans. In a huff, the outside world cannot help but worry about whether the use of new capital will be placed on expensive and unnecessary projects, such as appeasing unions.
Third, the listing may also change the balance of power within the Volkswagen Group.
According to Reuters, Volkswagen may issue an equal number of common and preferred shares in the IPO, and common stock is given voting rights. It is rumored that the Porsche family and the Pierch family may reduce their stake in Volkswagen and buy a stake in Porsche to loosen the family's control over the group and directly own the Porsche brand.
The above is based on the speculation of various foreign media sources, and there is no discussion until the boots land.
The real problem
It is worth thinking about why the public has to wait until now to make a decision if the market feedback is so enthusiastic.
One reason may be that while ipos can better reflect the value of Porsche, they will also expose the value of other companies in the Volkswagen Group. If Porsche succeeds in going public on its own, the market will still have a valuation of what remains of the Volkswagen Group.1 In terms of passenger cars, Volkswagen brand cars, Audi, Skoda, Bentley, Bugatti, Lamborghini, Seat, few are on the track.
This is actually a dilemma facing all the big groups.
Starting in 2020, many EV concept companies have received high valuations in the capital markets. Not only Tesla, but Tesla's market value has exceeded trillions of dollars, constantly widening the market value gap with Volkswagen, Toyota, General Motors and other traditional car giants, and even more than the sum of multiple old men, making the industry mood change.
Traditional car companies will consider splitting the business segment. For example, spin off the electric vehicle business, throw away the parent company and the traditional fuel vehicle business, use the logic of electric vehicles to seek higher valuations, and raise more funds to achieve growth. On the other hand, electric vehicles and related digital technologies are increasingly at the heart of car companies' strategies, and car companies do not want to give up control of these important assets.
This entanglement is reflected in many rumors.
For example, Bloomberg has previously reported that Ford may split its electric vehicle business into a separate entity, and then Ford said that it has no plans to divest immediately. Another example is GM, according to the Wall Street Journal, has been expecting its self-driving company Cruise to go public alone, but at the end of last year, GM announced the departure of Cruise's CEO, and the banker's background has always been considered related to the IPO - GM's stock price fell in response.
Compared with these technology brands, Porsche seems to be a more reasonable spin-off target, because Volkswagen does not rely on Porsche in electrification, at most it is a little profit.
More questions, more clear information is needed. Volkswagen will hold its annual press conference on March 15, where we may see exact information about the launch of Porsche.