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Stock Report No. 77 as of 02/25/2022
Only winners?! VW lets Porsche loose on the stock market
Rumors have been around for a while, but now the key data of “Project Phoenix” have become public. This is the working title under which the Volkswagen Group is preparing for an IPO of the sports car manufacturer Porsche AG – and this is electrifying investors.
But… some will ask themselves, because there is already the listed Porsche Automobil Holding SE. But although it contains Porsche, it is not a Porsche. Sounds confusing? It is. A bit.
A few years ago, a friend bought his first Porsche. He went to the Porsche Center and put together his dream car, a Macan. The wait was almost a year, and we had many conversations about the car during that time. And we’ve been to the Porsche Center several times, had cars left there for weekend trips, and my friend has really enjoyed the service.
(But not a) Peter Lynch pick
He was so “turned on” that he immediately bought Porsche stock. Basically, a classic Peter Lynch buy. After all, the stock market legend advises investors to buy shares in companies whose products you like yourself and where you can assume that many and more and more other people will feel the same way.
These criteria undoubtedly apply to Porsche automobiles. And yet Peter Lynch would not have bought the shares of Porsche Automobil Holding SE. At least not for these reasons. Because this company does not develop Porsches, it does not produce Porsches, and it does not sell Porsches. Even if it says Porsche on it, it doesn’t have a sports car in it. Not anymore. Peter Lynch would have known that, because he analyzes stocks in great detail before buying them. The average private investor doesn’t. And that’s why he buys the wrong stock. Because if you want to buy a stake in sports car manufacturer Porsche, you have to buy Volkswagen shares. And they have a choice between ordinary and (non-voting) preferred shares.
It took me some effort to explain to my friend that by buying shares in Porsche Automobilholding SE, he was not taking a stake in the sports car manufacturer, but in the asset management company of the Piëch and Porsche families. An oversight, but not an isolated case. And in an indirect way, my friend somehow achieved his goal after all. Only in a highly diluted way. Because Porsche Automobilholding SE is the major shareholder in Volkswagen with 31.4% and holds 53% of the voting rights. Volkswagen, in turn, owns 100% of Porsche AG, which builds the sports car.
VW law and veto right
As if this construction were not confusion enough, there is also the so-called “VW law”. According to this law, important votes at the Volkswagen Group do not require the two-thirds majority stipulated in the German Stock Corporation Act, but rather a four-fifths majority.l majority. And the state of Lower Saxony holds 20.2% of the voting rights, giving it a de facto right of veto over important decisions.
From this constellation, it is easy to see that Porsche AG’s proposed stock market plans are about much more than the IPO of a subsidiary. We therefore take a closer look at the tangled web of interdependencies and try to understand why the respective players might have an interest in this and who hopes to gain what in the end. After all, this is not entirely unimportant, especially from the shareholders’ point of view
tangle Dr. Ing. h.c. F. Porsche Aktiengesellschaft is a German motor vehicle manufacturer based in Stuttgart-Zuffenhausen. The company’s origin is a design office founded by Ferdinand Porsche in Stuttgart in 1931, which after 1945 merged into an automobile factory that produced mainly sports cars. In 1984, the company’s non-voting preferred shares were floated on the stock exchange for DM 780 each, with an opening price of DM 1020. The ordinary shares remained in the hands of the Piëch and Porsche families. The Piëch name took hold because Ferdinand Porsche had two children: Ferry and Luise. And Luise’s husband was called Anton Piëch.
From 1993 to 2002, Ferdinand Piëch, Ferdinand Porsche’s grandson and the main shareholder of Porsche AG, was Chairman of the Board of Management at Volkswagen and then Chairman of the Supervisory Board of the VW Group until April 2015.
This period also saw the separation at Porsche into an asset management company, which held large blocks of shares in Volkswagen, and a Porsche car production company.
After outsourcing car production, Porsche SE further expanded its stake in VW during 2007 and 2008 in order to gain control over VW. VW was struggling at the time, while Porsche was bursting with strength. So the small sports car manufacturer wanted to swallow the global corporation. A coup de grâce – that failed.
The acquisition of the stake was financed by bank liabilities of 10 billion euros. And the whole thing took place at a time that is now written in the history books as the real estate and financial crisis. In other words, at a time when the global financial system was on the brink of the abyss, banks had to take refuge under government rescue umbrellas and there were hardly any loans left. And those who had extended loans demanded them back as quickly as possible. Today, in a time of global money glut, it’s hard to imagine that 13 years ago it was exactly the other way around: there was a worldwide liquidity shortage. And that lasted for months and years.
Shortly before, Porsche had bought VW shares, making maximum use of its credit leeway. The plan did not hold out because the banks themselves experienced liquidity problems and thus cut Porsche off. As a result, Porsche had to announce in May 2009 that it was now aiming to create an “integrated automotive group” with Volkswagen. Volkswagen then acquired a 49.9 percent stake in Porsche AG from Porsche SE in December 2009 and then took it over completely on August 1, 2012.
So today the sports car manufacturer Porsche AG belongs to the Volkswagen group, but the Volkswagen group belongs to the Porsche family (including the Piëchs). 53% of it, anyway.
But VW is struggling. After briefly becoming the world’s
s largest automaker, the diesel scandal
became public in September 2015 and sales figures plummeted. This was followed by lawsuits, court proceedings, billion-euro settlements and fines, and recalls. The scandal spread further and further, and several corporate leaders lost their posts. Just as the situation was easing, the Corona pandemic came on the scene and sent sales figures worldwide plummeting once again. In China in particular, which is now Volkswagen’s most important sales market, orders failed to materialize.
And as if that were not enough, the end of combustion engines is on the horizon. More and more countries are heading for a ban on internal combustion engines, so carmakers are also having to look to alternatives to gasoline and diesel. Here, the electric drive is leading the way, while hydrogen is more of a niche product.
In addition, there have been disruptions in global supply chains for the past year and a half, and there are major shortages in the chip sector in particular. Car manufacturers in particular are repeatedly shutting down production because individual components are missing. This increases waiting times and prices, both for new cars and used ones. But that’s only small consolation; the production shortfalls weigh more heavily.
All new, all electric
The VW Group made an early and complete commitment to electric drive. But with that comes problems.
Until now, the key elements of automotive engineering have been design and the drive motor. Both are absolute core competencies of German manufacturers. But in the future, the key element of the engine will be eliminated, because electric motors are comparatively simple and tend to be mass-produced. Battery technology will prove to be the new core competence, because here it is a matter of range, weight and space. And about performance and charging times.
Unfortunately, Germany is not among the leaders in battery technology. And whether it will be possible to maintain its leading position on the world market on the basis of design alone is highly doubtful. Therefore, all manufacturers must invest heavily in battery technology and at the same time convert all models to e-drive.
This costs a lot of money, because car manufacturing is very capital-intensive. After designing the car, a production line has to be set up and factories built for it – or existing factories converted. Rising interest rates will become an important factor here after not playing a role for years. Risk also plays a role. Because if a new model turns out to be a flop, the automaker will still have made the investment and will then have a worthless factory on its hands. And this is no small risk, as VW is currently experiencing in China. Although it is one of the hottest manufacturers there, at least for combustion engines, it can hardly get rid of its electric models. The Chinese prefer to turn to domestic manufacturers of electric cars.
At Porsche, all new models will soon be launched only as electric variants. The sports car manufacturer’s margins are high and profits lush. This will not change with the electric models, because Porsche feeds off its brand, its nimbus, its history.
In response to the chip crisis, all manufacturers have reprioritized their production. The low-priced models b
are left by the wayside, and the premium models are preferred. This is understandable, because the companies earn much more money with them than with mass-produced models. This also plays into Porsche’s hands as a high-margin premium manufacturer.
Porsche is the yield grenade in the VW Group. And is currently more or less dragging the other brands along with it. Porsche is virtually disappearing within the VW Group, but would attract much more attention as an independent company. And it would probably also be valued much higher by the stock market than is currently the case.
A blueprint for this could be Ferrari. They were spun off from the FIAT Group and floated separately on the stock market. In the last five years alone, the share price has quadrupled. It is understandable that Porsche is expected to do the same.
And now things are getting more concrete: According to a company statement, the parent company VW is “in advanced talks” with Porsche Automobil Holding SE about a possible IPO of Porsche AG. VW and Porsche Holding SE had already negotiated a key point agreement. However, the conclusion of the key points agreement is still pending and requires the approval of the Board of Management and Supervisory Board of Volkswagen AG as well as Porsche Holding.
Exactly what a new structure might look like is still completely unclear. However, Porsche Holding let slip that the transaction could also include the acquisition of ordinary shares in Porsche AG by Porsche Holding. In other words, in the event of an IPO, shares in Porsche AG could end up both on the stock exchange and parts back at Porsche Holding.
The news is creating excitement on the stock market, driving up the share prices of VW and Porsche Holding by double digits. However, a quick IPO is hardly to be expected. After all, in addition to the still outstanding approvals of the boards, the details have to be finalized. And the mood on the stock market has to be right. After all, the parties involved would like to make a lot of money on the sale of Porsche shares, so stock market turbulence of the kind currently prevailing would do little to drive up prices.
Winner: Porsche AG
The sports car manufacturer is likely to benefit. As a listed company, it receives more attention, analysts and stock market news focus on it. Furthermore, it would no longer be so strongly integrated into the group and could act more freely and agilely. This creates room for maneuver, both entrepreneurial and price-driving. At the same time, the company would remain part of the VW family and would continue to be involved in platform developments through contracts, as well as benefiting from the conditions of the global corporation in purchasing.
If Porsche wins, VW must lose, right? Probably not. Because Porsche is currently just one brand among many in the group, and its successes are lost in the group balance sheet. As an independent listed company, but one in which the VW Group still holds a controlling majority, Porsche would remain part of the group balance sheet. Sales would continue to be recorded in full, as would costs. Only at the end something changes: there the minorities are deducted, i.e. the share of profit (or loss) attributable to the remaining Porsche AG shareholders.
So everything would remain the same, but less profit would end up in the VW group? Doesn’t sound great at first.
But on the other hand, VW is making a lot of money by selling its shares. In one fell swoop. And the VW Group urgently needs this money because it has to convert all its brands to e-models and thus convert all its subsidiaries’ factories at the same time. The billions from a Porsche IPO would really help here.
In addition, a listed Porsche subsidiary would probably be valued significantly higher on the stock market…
Continue reading: http://www.intelligent-investieren.net/2022/03/kissigs-aktien-report-nur-gewinner-vw.html