Vladimir Putin, having massed thousands of troops on Ukraine’s eastern border, ordered them to advance west, sparking the deadliest European war of this century. That same day, February 22, in Lower Saxony, triumphant Volkswagen executives announced the listing of Porsche on the Frankfurt stock exchange, to a world that no longer cared about the fate of a sports car brand.
Whether Wolfsburg’s bosses believe in bad omens or not, they have kept coming. This week, as VW published Porsche’s prospectus amid much rosy talk about the automaker’s financial performance, Russia said the Nord Stream 1 gas pipeline would not reopen until Western sanctions were lifted.
“They don’t even have the guts to say ‘we are at economic war with you,'” complained a spokesman for German Economy Minister Robert Habeck last month. Already fueled by the fallout from the war in Ukraine, German inflation hit its highest level in half a century in August at 7.9%.
VW’s share price, which in the past six months has hovered around an average price of around 138 euros, did not move significantly outside its usual range on news of the intended deal. Although it settled at around €180 in February, the war in Ukraine has seen it – along with a number of other European stocks – plummet amid economic uncertainty and sanctions.
But in the face of this financial turmoil, Volkswagen is pointing to its latest financial performance as a sign that all will be well with the luxury car brand’s intended partial initial public offering.
“We have shown enormous resilience especially in times of crisis,” insisted VW and Porsche CEO Oliver Blume on a call with global press on Tuesday. He added: “Looking back at the coronavirus crisis, the semiconductor crisis, this year with the Ukraine conflict, we’ve always been able to show very high margins and we think that will be very convincing.”
Blume’s optimism does not seem misplaced at first glance. In the first six months of 2022 the Volkswagen Group posted sales of €132.3bn (£113.6bn), up 2% on the same period last year. Gross profit of 13 billion euros and a 27% increase in electric car deliveries can be interpreted as a rosy picture.
Porsche made sales of 16 billion euros in the first six months of the year, shipping 149,000 vehicles. A drop of 3,000 was attributed to the effects of the Russian invasion. These are all broadly sound figures, but the real reason behind the float plans is simple: VW needs cash, and lots of it.
David Bailey, a professor of business economics at the University of Birmingham and an automotive expert, summed up the reasoning behind the move: “VW wants to float Porsche to raise a bunch of cash to build EV and battery factories.” VW’s Blume was a little more coy, saying this week: “There’s a lot of capital in the market and we think the Porsche IPO could be an icebreaker … and show what’s possible.”
Either way, the message is clear. VW wants money, but doesn’t want to give up control of one of its crown jewels. Just 12.5% of the company is to be sold, with no voting rights.
“Porsche is the most profitable part of VW and its Taycan model is seen as a serious challenger to Tesla,” adds Birmingham’s Professor Bailey. “Hence the appeal of VW selling it to raise cash when large investments in new technology are required.”
Beyond that, however, the professor says it’s “difficult to see the logic in the movement or the timing of it.” He points to VW’s governance and ownership structure, which sees Dr. Ferdinand Porsche, great-grandson of the company’s eponymous founder, serve on its supervisory board. Ditching a chunk of non-voting stock is a complicated way to raise cash while trying to hold existing power structures accountable.
Meanwhile, competition in the market is accelerating. In the race to build more electric vehicles, VW has been left standing by rivals such as Elon Musk’s Tesla and China’s BYD.
Earlier this year Tesla, which for years was the preeminent electric vehicle maker in the West, was overtaken by Warren Buffett-backed BYD.
China is one of the biggest car markets in the world: gaining domestic know-how and scaling BYD’s positions to compete with the big legacy carmakers of old Europe, and VW’s board is obviously feeling the pressure. BYD shipped 174,000 electric vehicles in the first half of the year, quickly outpacing VW’s 217,000 sales.
Plant expansions in Emden, America’s Chattanooga and Hanover to prepare for increased electric vehicle production are all capital-intensive jobs, not helped by the negative impact of the global chip shortage on the broader auto industry’s ability to achieve on-time fulfillment of orders.
But institutional investors, including T Rowe Price and the Qatar Investment Authority, are looking at the spread with interest. QIA – which already has a seat on VW’s board – plans to buy nearly 5% of Porsche. Demand is reportedly higher than shares on offer.
Retail investors in Western European countries, including Germany, Italy, Austria and Switzerland, among others, will also be able to buy Porsche shares if the Frankfurt listing goes ahead.
At VW Group’s projected valuation of €85bn (£73bn), the 12.5% non-voting share offer would raise around €10bn in cash.
However, the offer itself is still up in the air, even as VW starts to tip its hat. Reuters reported that the deal’s four-week expression of interest period could be extended if investors don’t show enough interest, with one saying: “It paves the way, but that doesn’t guarantee the stock market bell will ring at the end. “