Vladimir Putin, having assembled thousands of soldiers on Ukraine’s eastern borders, gave the order for them to advance west, triggering the most destructive European landwar of this century. On the same day, February 22, in Lower Saxony triumphant Volkswagen executives announced a float of Porsche on the Frankfurt stock market, to a world that no longer cared about the fate of a sports car brand.
Whether the Wolfsburg bosses believe in bad omens or not, they have kept coming. This week, as VW published the Porsche prospectus amid lots of rosy talk about the carmaker’s financial performance, Russia declared 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 in an economic war with you'," complained a spokesman for Germany’s economy minister Robert Habeck last month. Already fuelled by the impact of the Ukraine war, German inflation hit its highest level for half a century in August, at 7.9pc.
VW’s whipsawing share price, which over the past six months has danced around a median price of about €138, didn’t move significantly outside its usual range on the news of the intended float. Although it stood at about €180 in February, the Ukraine war sent it – along with a range of other European stocks – plummeting amid economic uncertainty and sanctions.
Yet in the face of this economic turmoil Volkswagen points to its most recent financial performance as an indicator that all will be well with its intended partial initial public offering of the luxury automotive brand.
Oliver Blume porsche - Michael Nagle/Bloomberg
“We have shown a huge resilience especially in crisis times,” insisted VW and Porsche chief executive Oliver Blume on a call with the world’s press on Tuesday. He added: “Looking back on the corona crisis, the semiconductor crisis, this year with the Ukraine conflict, we always have been able to show very high profit margins and we think this will be very convincing.”
Blume’s optimism doesn’t seem misplaced at first glance. During the first six months of 2022 Volkswagen Group made sales of €132.3bn (£113.6bn), an increase of 2pc on the same period in the previous year. Gross profits of €13bn and electric car delivery growth of 27pc can all be interpreted as painting a rosy picture.
Porsche accounted for €16bn in sales during those 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 healthy figures, but the real reason behind the float plans is simple: VW needs cash and lots of it.
David Bailey, professor of business economics at the University of Birmingham and an automotive industry expert, summarised the rationale behind the move: “VW wants to float Porsche to raise a heap of cash to plough into building EVs and battery plants.” VW’s Blume was a little more coy, saying this week: “There’s a lot of capital in the market and we think that 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 any control of one of its crown jewels. Just 12.5pc 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 Tesla-challenger,” adds Birmingham’s Prof Bailey. “Hence the attractiveness to VW selling it off to raise cash when big investment is needed in new tech.”
Beyond that, however, the professor says it is “difficult to see the logic in the move or in its timing”. He points to the VW governance and ownership structure, which sees Dr Ferdinand Porsche, great-grandson of the eponymous company’s founder, serving on its supervisory board. Carving off a chunk of non-voting shares is a complicated way of raising cash while trying to keep the existing power structures in charge.
porsche - Krisztian Bocsi/Bloomberg
Meanwhile, market competition is speeding ahead. 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 had for years been the West’s pre-eminent EV maker, was overtaken by Warren Buffett-backed BYD.
China is one of the world’s largest automotive markets: gaining domestic expertise and scale positions BYD well to compete against the big legacy carmakers of old Europe, and VW’s board is evidently feeling the pressure. BYD shipped 174,000 electric vehicles in the first half of the year, coming up fast on VW’s 217,000 sales.
Factory expansions in Emden, America’s Chattanooga and Hanover to gear up for increased electric vehicle production are all capital-intensive operations, not helped by the global chip shortage’s negative impact on the wider automotive sector’s ability to achieve timely fulfilment of orders.
Nonetheless, institutional investors including T Rowe Price Group and the Qatar Investment Authority are looking at the float with interest. QIA – which already has a seat on the VW board – plans to buy an almost 5pc stake in Porsche. Demand reportedly is higher than the 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 intended valuation of €85bn euros (£73bn), the 12.5pc non-voting share offering would raise around €10bn cash.
Yet the offering itself is still up in the air even as VW starts offering round its hat. Reuters reported that the deal’s four-week expression of interest period may be extended if investors don’t show enough interest, with one saying: “It's paving the way, but this would not guarantee that the stock market bell will ring in the end.”
