Volkswagen Plans to Spinoff Sports Car Brand in IPO

Volkswagen AG plans to spinoff its Porches sports-car unit, a move that could boost its valuation and bring generate huge cash for the company, according to sources familiar with the matter.

The automaker is in talks with advisers to properly analyze the upsides of the potential spinoff of Porsche, said the sources who chose not to be identified as the matter was still being confidentially discussed. The proceeds from the spinoff could either be used for technology investments or acquisitions.

Chief Executive Officer of Volkswagen, Herbert Diess told Bloomberg last month that Tesla and other electric-vehicle companies were leveraging the market optimism about their growth potentials. To get on the EV train, investors say that Volkswagen would have to spend tens of billions to develop electric vehicles and restructuring operations that involve combustion engines.

Shares of Volkswagen rose as much as 6% in Frankfurt, following the announcement.

“A Volkswagen IPO of its Porsche brand would be a bold solution to generating much-needed shareholder value,” said Bloomberg Intelligence analyst, Michael Deans in a note. He added that the company’s plan to get Porsche almost all-electric by 2030, excluding the 911 model could “attract Tesla-like multiples while generating a Ferrari-like model Ebitda margin.”

According to Dean’s analysis, the valuation of Porsche 110 billion euros more than Volkswagen. Despite Diess’s goal in 2019 to make Volkswagen more valuable, increasing its worth to 200 billion euros, the company’s valuation remains at 90 billion euros ($109 billion). Compared to Tesla’s $757 billion valuation, Volkswagen is about seven times lower.

The Porsche spinoff deal could likely be profitable for the parent company as it will be able to venture into the EV production line. Volkswagen also plans to invest some of the cash in companies that produce the software Volkswagen considers as the future of the industry. The companies include battery companies NorthVolt AB and QuantumScape Corp. The car-maker has also invested $2.6 billion in Argo AI, Ford Motor Co.’s autonomous car developer.

The Porsche spinoff and listing could likely happen next year, although the company is yet to fix any proper timetable, the sources said. If Porsche eventually IPOs as planned, Volkswagen will keep a majority stake.

Deliberations between Volkswagen leadership and potential investors are ongoing, there is no telling what the outcome would be.