Volkswagen’s spinoff of Porsche would give it more capital to invest in electric vehicles, but the German automotive giant would also lose its most profitable division.
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A quick glance at the complex relationship between the two carmakers is warranted: In 2008, Porsche Holding confirmed long-circulated rumours of its intent to take over Volkswagen, announcing an ill-fated plan to acquire a 75% stake. It was a bold attempt to usurp Germany’s most valuable company—and it had unintended consequences: It made VW the world’s most valuable company for a time, brought Porsche nearly to the brink of financial ruin, and ultimately led to VW’s merger with Porsche in 2011.
As things stand today, Porsche is a wholly owned subsidiary of VW. Porsche Holding, which is controlled by the Porsche and Piëch families, descendants of the company’s founder, is VW’s largest shareholder with 51% of its voting shares. Soon the relationship status of VW and Porsche could change yet again. On February 22, VW and Porsche announced that they are in “advanced discussions” over an initial public offering (IPO) of Porsche. Analysts estimate a valuation of up to $102 billion.
Spinning off Porsche certainly aligns with the strategy of VW CEO Herbert Diess. When he was appointed in 2018, Diess made restructuring a primary goal, along with repairing VW’s reputation. In light of the company’s tenuous position in the automotive world at that time, the board gave Diess an unusual degree of power in its reorganization. Ever since, he has tried to streamline the company’s ungainly portfolio of marques. In addition to Porsche and its namesake, VW owns Audi, Bentley, Bugatti, Lamborghini, SEAT in Spain, Czechoslovakia’s Škoda, and Italian motorcycle brand Ducati.
In addition to more streamlining of the German giant, Diess aspires to reinvent it as a maker of software-intensive electric vehicles. A cash infusion from Porsche’s IPO would help. But the matter is not so simple, given that Porsche is VW’s most profitable division. While it made only 277,000 of the 11 million vehicles the automotive group produced in 2019, it accounted for a tenth of its revenues and a quarter of its operating profit, according to The Economist.
Parting with Porsche could also have an impact on Diess’s electric vehicle goals. The luxury sports car maker’s battery-powered Taycan is a winner with a profitable electrification plan unique among sports car firms. Porsche has sold more Taycans, a sports sedan, than its flagship 911. It also surpassed Tesla’s Model S and Model X in sales in 2021. Volkswagen and Audi have had less success overall with their electric vehicles. The Volkswagen ID.3 and ID.4 have performed well; however some models, including the Audi E-tron S.U.V., have lagged comparable models from Tesla and other carmakers.
VW and Porsche have been relatively tight-lipped regarding the deal, which could result in one of the world’s biggest stock market debuts. As of this writing, they have reported negotiating a framework agreement, and preparations for the IPO are progressing. The framework agreement states that the feasibility of an IPO depends on “a large number of different parameters as well as the general market conditions.”