Volkswagen Group considers split following Porsche IPO

A number of Volkswagen Group's luxury performance brands may be carved out to form their own entity, with formative plans to publicly list the new group.

Earmarked for 2024, but dependent on the geo-political and economical development, the plan is to float the so-called Premium-Luxury-Supersport Group (PLS) on the stock exchange.

This still-to-be-formed, but repeatedly discussed, entity would include; Audi, Bentley, Lamborghini, Ducati and, possibly, McLaren, leaving the Volkswagen Group to focus on volume-selling brands.

According to the Zuffenhausen grapevine, the Porsche initial public offering (IPO) is a blueprint for the next element of the future holding structure.

But the purchase of McLaren by Audi, and the plan to go F1 racing together, has yet to be confirmed. And as far as Lamborghini goes, Porsche is apparently still open to taking the Italian sports carmaker under its wings.

Although the Audi CEO Markus Duesmann has recently acknowledged that neither an Audi motorbike (with Ducati?) nor an Audi pick-up (with Ford?) can be ruled out in the not too distant future, the key to sustainable profitability and extended synergies is the Bentley connection.

Porsche has for various reasons withdrawn from this cooperation. Instead, the team from Weissach is now proceeding with its own highly dynamic, made-to-measure, electric vehicle architecture – dubbed SSP6.

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Herbert Diess has always been a great fan of the holding structure. After all, fanning the brands out over a wider spectrum which is trading on the stock exchange is potentially one of the simplest and safest ways to at least double the group's fledgling sub €100 billion market value, which still makes investors frown.

When the Porsche IPO is complete by the end of the year, the group could net up to €20bn by selling a minority interest, which would equal roughly a quarter of the estimated €80bn overall yield.

Add this to the current €8bn cash-flow and the reassuring liquidity reserve of more than €26bn, and even major tasks like building six new European battery factories look quite manageable.

But in the long run, the Volkswagen Group will need even more fresh funds to countervail the seemingly bottomless staggered paradigm shift, the huge investments in autonomous driving, access to future battery technology and to sort out the troublesome multi-brand Cariad operating system.

Lamborghini was recently valued by analysts at between €8bn and €16bn, Ducati is worth a claimed €5bn, but cash-poor McLaren may initially not even be deemed a financial asset at all. This leaves Audi (valued at around €35bn) and Bentley (worth approximately €15bn) as the main secondary protagonists of an IPO – the success of which depends primarily on the performance of Audi.

Right now, the numbers are still in line with expectations, but the outlook is clouded by home-made cost problems, leadership issues and process-related setbacks.

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What is going to happen to the proposed volume group headed by the Volkswagen brand? The short answer is: probably nothing for a relatively long time.

According to financial analysts, the stock market would at this point clobber VW, Seat, Cupra and Skoda for their below-par average net return on investment of three to five per cent.

The beefier margins secured by competitors like Hyundai/Kia or Stellantis are right now an unrealistic target for the VW volume brands. But if the volume group does get its act together, this asset conservatively valued at €60bn should drive the group's net worth to around €220bn.