A long-awaited duel in the lucrative and promising electric-vehicle sector is taking shape.
It’s a dream poster. And guessing the winner would be difficult as each of the two adversaries have strong arguments in its favor.
The rules of this fight, which will take place on the main EV markets — China, the U.S. and Europe — are known to all. The weapons — the Models S, Y, X and 3 versus the — are familiar.
After months of rumors, Volkswagen (VLKAF) said on Tuesday that it was studying the possibility of giving independence to Porsche, one of its luxury brands along with Bentley, Bugatti and Lamborghini.
If it’s confirmed, independence will take the form of an IPO of Porsche, the sports car brand whose emblematic model remains the Porsche 911.
Volkswagen AG and Porsche Automobil Holding are “in advanced discussions regarding a potential IPO of Dr. Ing. h.c. F. Porsche AG,” the German carmaker said in a news release.
“For this purpose, Volkswagen AG and Porsche Automobil Holding SE negotiated a Framework Agreement which should form the basis for further steps in the preparation of a potential IPO of Dr. Ing. h.c. F. Porsche AG.”
Not a Done Deal Yet
Volkswagen, which is looking for funds to finance its electric transition, remains cautious about the outcome of the process.
“The conclusion of the Framework Agreement is subject to the approval of the Management Board and the Supervisory Board of Volkswagen AG. A final decision have not yet taken,” the company warned.
“Whether a Framework Agreement is concluded and its content, as well as the question if an IPO of Dr. Ing. h.c. F. Porsche is being further assessed, is currently open and depends on the approval of both parties’ boards.”
Indeed, Volkswagen’s complex ownership structure has in the past limited management’s ability to carry out structural reforms. Volkswagen has a tradition of buying brands rather than selling them.
Porsche is currently 100%-owned by Volkswagen Group, which in turn is controlled by a financial holding company called Porsche SE.
Through Porsche SE the Porsche and Piech families hold 53.3% of the ordinary shares in Volkswagen Group, according to the website. Porsche SE is a public company, trading in the U.S. under the ticker symbol POAHF.
Porsche SE said in a statement that it might buy shares in an IPO of the Porsche carmaker. Analysts estimate the valuation of such an IPO in the tens of billions of euros.
Volkswagen’s reasons for carrying out this transaction are clear: to dominate the market for electric vehicles.
The giant has been engaged for several months in a fierce race to electrify its offerings and bring itself to the level of Tesla and Chinese competitors, which are more advanced in the field.
Volkswagen has planned to invest tens of billions of euros in its electrification and intends to have half its vehicles electrified by 2030.
Tesla Wins the Market-Cap Game
Spinning off Porsche could provide new capital to enable Chief Executive Herbert Diess’s strategy. Diess is under pressure to bring Volkswagen up to Tesla’s level. And Volkswagen also hopes that the move could boost its stock market valuation, which has lagged, especially against Tesla.
Volkswagen’s market capitalization above 112 billion euros ($127 billion) is about a seventh of the $859 billion for Tesla. With this in mind, and wishing to reduce the complexity of the conglomerate, the group has already listed its Traton truck branch on the stock market and sold a majority of the luxury manufacturer Bugatti.
On the other hand, Porsche is surely one of the brands capable of playing on equal terms with Tesla.
First of all, it’s an iconic brand, with wide gross margins. Its vehicle image is associated with the ultimate in luxury and speed.
In addition, Porsche is well advanced in the electric transition with two models, the Taycan EV and the Macan SUV EV.
Noteworthy is that the Porsche Taycan comes in five versions, with a base price of $82,700, while the base price of the Macan SUV is $58,000.
Tesla has four models: the Model S, the luxury SUV Model X, the Model Y and the entry-level Model 3. Base prices for the lineup range around $41,000 for the Model 3 to $100,000 for the S.