Porsche IPO

Introduction

Porsche is a luxury German automobile manufacturer specializing in high-performance sports cars, sedans, and SUVs. Porsche is owned by Volkswagen Group, a large parent organization for multiple German automobile brands. Porsche is headquartered in Stuttgart, Germany.

Porsche’s IPO is set to list this fall. Volkswagen (VW) has been wanting to push Porsche’s further independence for some time. “This is a historic moment for Porsche,” said Oliver Blume, the chief executive officer of both Porsche and the entire Volkswagen Group. Porsche has been the money maker for VW Group for years now, as it accounts for 50% of VW’s pretax profits on automobiles, while the brand accounts for only 3% of VW’s sales. Porsche’s sales have been skyrocketing recently, with over 300,000 sales this year, up 11% from last year’s sales.

Most analysts expect a valuation of Porsche between €60 billion and €85 billion, equivalent to between $59.8 and $84.6 billion. If this valuation is accurate, it would make this IPO the largest in Germany’s history and the largest in Europe since 1999. 

What is an IPO?

An IPO, or initial public offering, is when a private corporation offers public shares of their company to be sold to institutional and retail investors. Institutional investors are companies that make investments, while retail investors are individuals. Corporations use investment banks to make the shares available on one or more stock exchanges such as The New York Stock Exchange or Nasdaq. If a stock is listed on more than one exchange, it is called a dual listing. Investment banks set the date and initial price of the IPO. When a company goes public, it must meet all of the requirements from the SEC (Securities and Exchange Commission), and the requirements of the exchanges that the stock would be listed on. An IPO’s main purpose is to raise equity capital from public investors. IPOs can also be used as a way to realize profits made by early investors or executives. When a company goes public, these people will have partial ownership of the company and will be able to sell their shares as they please.

Possible interest in the IPO

Volkswagen announced they will be keeping 75% of Porsche shares while planning on selling 25%. 12.5% would be voting shares and the other 12.5% would be nonvoting shares. The nonvoting shares would be available for investors to buy, while the voting shares would be sold directly to the Porsche family, who are the largest shareholders of VW. Nonvoting shares are not able to vote on decisions such as electing the board of directors, while voting shares would contribute to those decisions and elections. VW also stated that 49% of the money obtained from the IPO will be distributed to Volkswagen investors in the form of a dividend.

The Qatar Investment Authority (QIA) plans to purchase 4.99% of Porsche’s preferred stock, a type of stock that is entitled to fixed dividends and has a higher priority of receiving dividends than common stock. This action makes the QIA a large cornerstone investor of Porsche’s IPO, a type of investor that commits in advance at a set price for a set amount of shares during an IPO. Preferred shares will also be offered to retail investors in some European countries such as France, Spain, and Italy, in an attempt to reach Porsche's most loyal customers.

Preliminary reactions to the IPO and situations at Volkswagen

Volkswagen's board came to a decision for chief executive Herbert Diess to resign on September 1st and to be replaced by Porsche CEO Oliver Blume. Though the exact reasoning behind the resignation of Diess is unknown, many believe it has to do with past scandals. VW investors are now conflicted on the idea of Porsche’s IPO, according to Bernstein Research’s poll including 58 investors. In Bernstein Research’s poll, 58 investors were asked whether or not Porsche should be listed; 42% were in favor of a listing of Porsche, and 41% were against it. 63% of the investors thought that Diess' departure would have a negative impact on stock performance, while 22% thought it could improve it. Nearly three-fourths of the investors believed that Chief Executive Oliver Blume's dual role in leading both Volkswagen and Porsche would weigh on VW stock and negatively affect the IPO. 

Market conditions are affecting companies’ decisions on whether it is a good time to list an IPO. Many are considering Porsche bold to announce an IPO in the middle of a bear market as the downward market trend could cause problems for Porsche. The downward spiral of European stocks due to the war in Ukraine has investors on high alert for the possible failure of this IPO. Analysts at Stifel said, "VW should work on its timing: the plan to IPO was announced the very same day Russia invaded Ukraine, the 'Intention to Float' (The term intention to float means that a company is ready to go through with the idea of listing an IPO) comes out exactly when Russia stops supplying gas to Germany."  Ingo Speich, head of sustainability and corporate governance at a large Volkswagen investor Deka Investment, said, "Market conditions are currently very unfavorable." Speich also declined to answer if he would purchase any Porsche shares.

In response to the criticism of Porsche’s timing, Porsche's CEO claims there is still a large interest in the stock. "Despite the market conditions, there is huge interest. That is a great success," Blume said. While many investors believe a bear market is a bad time to list an IPO, most investors can agree that the valuation is accurate and if it’s on the high end of the estimation, it could be the largest valuation of an IPO in all of Germany’s history.

Impact of the IPO on the electric vehicle car market

Volkswagen is determined to overtake Tesla as the global leader in electric vehicle sales by 2025 and make sales of EVs more than a quarter of its revenue by the year 2026. Porsche intends to spend about half of its planned spending money, €89 billion ($88.4 billion), over the next 5 years to further develop EVs. Porsche expects 80% of Porsches sold by the end of this decade to be electrically powered, and for half the luxury automotive market to be EVs in 2031. Porsche CEO Oliver Blume said: “Our target is to selectively expand higher-margin segments and to leverage electric-vehicle pricing opportunities.” Porsche is also ahead of many competitors such as Ferrari or Aston Martin when it comes to EVs, but still far behind Tesla, meaning that Porsche will need to execute major revamps with its factories and training for staff in order to surpass Tesla.

IPO news

While Porsche’s IPO is impressive news, IPO momentum in other fields has slowed down dramatically over the past few quarters. IPO deals in the Americas have come to a stuttering 73% drop in deals and a 95% loss of profits. The Asian-Pacific markets have gone down a sizable 37%, with a decrease of 42% in profits. Geopolitical tensions and volatility of recent markets have been the main cause of this decline. The war in Ukraine, as mentioned previously, has discouraged risky but high-reward investments and the presence of COVID-19 around the world continues to leave its mark on the economy. These causes have also reduced cross-border relations and thus the economy.