Please ensure Javascript is enabled for purposes of website accessibility

Should Investors Cheer a Potential Porsche Spinoff?

By Daniel Miller - Feb 18, 2021 at 1:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here's how a spinoff could be great for both Volkswagen and Porsche.

The automotive industry is poised to perhaps evolve more over the next two decades than it has over the past 10, as automakers race toward fleets of electric vehicles (EVs), autonomous cars, and transportation as a service. This evolution will require automakers to adapt, and that could be the driving force behind a Bloomberg report that Volkswagen (VWAGY -0.61%) is considering separately listing its Porsche luxury sports car division.

The potential spinoff, which would likely take place next year, could unlock a higher valuation for the Porsche unit while giving Volkswagen an injection of cash to potentially use in acquisitions or to develop electric and autonomous vehicles. Keep in mind that companies such as Tesla have been able to fully capture investor enthusiasm for an all-EV future, while traditional automakers have lagged behind in valuation and investor optimism.

Considering that traditional automakers will need tens of billions of dollars in investments to transform and adapt, Volkswagen, the world's second-largest automaker, could use proceeds from a Porsche spinoff to kick-start its evolution.

A line of Porsche vehicles driving.

Image source: Porsche Cars North America.

Investors need not look far into the past to see a similar spinoff that has, for the most part, worked out well: when Fiat Chrysler Automobiles listed 10% of Ferrari (RACE 0.55%) in an initial public offering. Ferrari now trades at a forward consensus price-to-earnings ratio of 39 times, extremely high for an automaker, and has a market capitalization of roughly $49 billion.

Compare that to Stellantis (STLA 1.40%), the merger of Fiat Chrysler Automobiles and Peugeot, which trades at a forward consensus P/E of 5.68, and a market capitalization of just over $50 billion.

This deal is far from a sure thing, but reports are spreading the company could list as much as 25% of Porsche as a separate company, with Volkswagen still holding the majority stake, in a spinoff that could be valued at as much as $30.2 billion. This is definitely a development for investors to keep a close eye on over the next year.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Volkswagen Aktiengesellschaft Stock Quote
Volkswagen Aktiengesellschaft
$19.58 (-0.61%) $0.12
Ferrari N.V. Stock Quote
Ferrari N.V.
$189.48 (0.55%) $1.04
Peugeot S.A. Stock Quote
Peugeot S.A.
$14.46 (1.40%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.