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David vs. Goliath: Can a Porsche IPO Help Volkswagen Steal Tesla’s EV Crown?


The Porsche logo on a black vehicle.
Source: r.classen / Shutterstock.com

Editor’s note: This article was updated on May 9 to correct analyst Stephanie Brinley’s name. 

As the electric vehicle sector continues to rapidly evolve, Wall Street is keeping a close eye on Volkswagen (OTCMKTS:VWAGY) ahead of its highly anticipated Porsche initial public offering. Analysts expect a Porsche stock debut to further VW’s ambitious plunge into EVs. But with Tesla (NASDAQ:TSLA) continuing to defy funding and production expectations, VW has something of an uphill battle ahead. Can a Porsche IPO really allow VW to rival Elon Musk’s automotive superstar?

Investors have clamored for a Porsche IPO practically since 2008, when the brand was first brought under VW in the infamous reverse takeover. But it seems the time of reckoning is finally here.

VW leadership has repeatedly hinted at bringing its most coveted automaker public, recently even selecting banks to coordinate the move. Indeed, some analysts predict Germany’s most profitable auto brand will go public as soon as the fourth quarter of this year.

Many expect the move will put VW’s EV aspirations into focus, especially given Porsche’s breakout success in the field. Porsche’s Taycan model is one of VW’s most commercially successful — and critically acclaimed — EVs ever produced. In 2021, the Taycan doubled in sales from the year prior. The car even outsold the 911, Porsche’s most renowned sports car, as well as Tesla’s top-line Model S. 

But Tesla is, well, Tesla. The company dominates the North American electric vehicle industry and continues to enhance its international presence. It currently holds a massive 75% share of the U.S. EV market. Despite standing at the forefront of automobile excellence for nearly a century, in the electric vehicle field, Volkswagen is undoubtedly the “David” to Tesla’s “Goliath.”

Electric vehicle sales continue to accelerate year over year, and with current supply constraints pushing fuel costs to record highs, many analysts expect the transition to EVs to hasten even further. Current consensus estimates call for EVs to make up more than half of all U.S. vehicle sales by 2030. Electrification is undeniably the path forward, which presents both opportunities and potential roadblocks for legacy and early stage automakers. 

With legacy companies rapidly transitioning to electric-based propulsion systems, there’s a clear race ahead of who can claim the EV throne. VW — and its host of subsidiaries — may represent Tesla’s closest competition. Globally, Volkswagen continues to trail Tesla, owning roughly 10% of the EV market compared to Tesla’s nearly 21% share. A Porsche IPO may be VW’s best chance at securing the funding necessary to push its electric transition.

So, should the notion of a Porsche IPO keep Musk up at night?

Volkswagen Targets Tesla Production Metrics with Porsche IPO

Arguably Tesla’s greatest advantage over other EV makers is its production capacity. With the company continuing to expand the locations of its Gigafactories, Tesla is in a class of its own for vehicle production. 

Using its patented “megacasts,” the company can produce one of its Model Y vehicles in just 10 hours. For context, Volkswagen estimates it can achieve similar production metrics by 2026. Currently, it takes VW three times as long to make one ID.3 vehicle, one of its smaller electric offerings.

However, according to S&P Global Mobility analyst Stephanie Brinley, the EV race is a “marathon not a sprint.” Brinley recently spoke with InvestorPlace about VW’s electric prospects ahead of a potential Porsche IPO. According to the analyst, it is important to view the EV battle in the context of a long-haul technological transition from internal combustion engines to electric engines. 

“We’re in the very beginning, and Volkswagen’s products have performed pretty well, and Rivian and Lucid and the like still have to build up their own scale and their own manufacturing footprint, and they’re doing it at the same time that VW is expanding its manufacturing footprint. ​​The more that anyone focuses on the next three years, the easier it is to lose sight of the fact that we’re really talking about a 15-to-20 year project.”

As Brinley argues, it’s far too early to crown any one company the EV king. The next few years will likely be defined by rapid production optimization alongside quickly evolving consumer tastes. With that said, the first-mover advantage is still alive and well.

To say Tesla has something of a head-start in the EV race would be putting it lightly.

Unlike legacy automakers, Tesla’s production facilities were always intended to produce EVs. Its competition will likely have to spend substantial time and capital to rework their factories to better accommodate EV production. But according to Brinley, this leaves neither Tesla or its legacy peers in an outright winning position.

“Tesla and the like don’t have the challenge of transition, but they have the challenge of growth. They have the challenge of building up a manufacturing and distribution and brand network that encompasses the globe, and VW has got 12 or 13 brands. It’s a massive thing that they’ve grown over a hundred years, give or take. So that scale and scope, sometimes it can make it a little bit slower to move, but once you start moving there’s a lot to work with there, and the smaller and newer manufacturers have a lot to build up, too.”

Tesla recently opened its first European Gigafactory in Berlin. The facility happens to be located just over a 100 miles away from the country’s largest auto factory, the Wolfsburg Volkswagen Plant, which doubles as VW’s headquarters.

VW is surely feeling the heat with Tesla launching one of its engineering marvels so close to its historic home base. But to say that VW doesn’t have its own sources of competitive advantage in the EV race would be a gross misrepresentation of its potential. 

A Porsche IPO Could Give Investors Access to an EV Powerhouse

It’s hard to overstate Porsche’s value to Volkswagen. Despite only producing about 3% of Volkswagen Group’s vehicles, Porsche accounts for more than a quarter of VW’s operating profit. The luxury brand enjoys industry-leading margins on its sport-centric vehicles, so much so that VW is willing to circumvent its complicated ownership structure to expand the brand.

Indeed, VW’s decision to bring Porsche public was likely in part a decision by the Porsche family, partial owners of Volkswagen. The Porsche and Piech families, modern-day descendants of namesake founder Ferdinand Porsche, hold a 31.4% stake in Volkswagen. They also control 53.3% of the Group’s voting rights. The families exert their ownership through Porsche SE (OTCMKTS:POAHY), a holdings company which they control. This is not to be mistaken with Porsche Auto Group (AG), which represents the vehicle maker itself and the Porsche brand. For clarity’s sake, all mentions of a Porsche IPO refer to Porsche AG.  

For IPO purposes, VW has shared plans to split Porsche ownership into ordinary and preference (non-voting) shares. VW will retain all ordinary shares, with the stipulation that Porsche SE – operated by the Porsche and Piech families – will buy roughly 25% of Porsche’s ordinary shares from VW at a 7.5% premium to Porsche’s IPO price. It then plans to list up to 25% of Porsche’s preference shares. 

When all is said and done, this only leaves between 12%-15% of the total company available for public ownership. In addition, the preference shares on offer will hold no voting rights, which may come as a disappointment to activist investors looking for decision-making power in the company. However, this also limits potential interference from outside parties, allowing Porsche to focus on what it does best: build cars. 

With that in mind, the long-term benefits of a public offering shouldn’t be overlooked. An IPO presents Porsche and VW the immediate funding necessary to broaden their EV catalog. Currently, Porsche’s only electric models are the Taycan, a sporty sedan, and the Macan, a crossover SUV akin to Tesla’s Model Y. Rumors are already floating over the possibility of an all-electric 911, Porsche’s flagship sports car. 

On the VW side of things, the funding could prove equally useful in ramping up its production of electric offerings. This includes the highly anticipated ID.Buzz electric camper van, currently scheduled for a 2023 North American launch. This comes in addition to VW’s successful ID.3 hatchback and ID.4 SUV models that consistently rank high in EV sales. The IPO could provide VW the cash necessary to push forward with its all-electric future. 

Early estimates place Porsche’s potential market capitalization at nearly $100 billion. This dwarfs the likes of Mercedes-Benz, BMW and General Motors (NYSE:GM), teeing it up as one of Germany’s largest IPOs ever. In fact, should it end up north of its estimate, Porsche may just end up overshadowing VW’s $104 billion valuation. Now this doesn’t exactly close the gap with Tesla’s near-$1 trillion market cap. But Porsche’s listing should certainly add some additional funding power to fuel VW’s rapid EV expansion.

VW Is Diving Head-First Into Unknown Waters

It’s no coincidence that in the midst of perhaps the greatest technological transition in automobile history, VW is choosing to take one of its most prestigious brands public. 

Volkswagen owns roughly a dozen car brands and could’ve listed nearly any of them at any point in the past decade. VW is making a strategic decision to bring Porsche public, one that may prove the difference-maker in the long run. Its EV expansion is far from over, but the notion that Porsche could be the stepping stone for VW to challenge the Goliath that is Tesla remains significant.

Going forward, all eyes are on VW and Porsche. The next few years may well build the foundation for a new generation of EV leaders for decades to come. VW’s choice to take Porsche public is the culmination of nearly a century of automobile production and brand cultivation. Even amidst growing supply chain hiccups and growing recession concerns, VW hasn’t nudged a bit in its planned Porsche IPO. This is largely a testament to VW’s commitment to its vision for the brand. 

VW is perhaps the most ambitious legacy automaker in its efforts to catch up to Tesla’s EV royalty. With both Tesla and VW reaching new frontiers in EV innovation, Porsche’s upcoming IPO is set to make the race to the top all the more interesting for investors and car fans. 

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

Article printed from InvestorPlace Media, https://investorplace.com/2022/05/david-vs-goliath-can-a-porsche-ipo-help-volkswagen-steal-teslas-ev-crown/.

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