VW/Porsche: discount delusion | Financial Times

VW, the German car manufacturer attempting to refashion itself as the market leader in electric vehicles, is on quite a run. Since Friday’s close, the company’s ordinary shares have ramped up as high as 36 per cent as investors have cottoned on to the fact the Wolfsburg-based business will grow electric vehicle deliveries faster than Tesla in 2021.

Yet, for some reason, VW’s preference shares have lagged behind. Market observers, such as Mirabaud’s Neil Campling, have pointed out the price action is reminiscent of the epic VW short squeeze of 2008, when a similar gap opened up between the two securities.

Here’s the performance gap from 2008:

And now Thursday, as of when the email hit our inboxes just before lunch:

OK, so not quite the same gap. But the outperformance is striking.

So what’s going on?

Well one suggestion, from Reuters, is that VW’s ordinary shares, which are traded in the US via an over-the-counter American depositary receipt, or ADR, have caught the attention of retail bros. The preference shares, meanwhile, can only be accessed by those on the German exchanges, so they have less pull with the stimmy crowd.

But that’s not the only way to buy VW shares.

Porsche SE is the listed German holding company of the Porsche-Piëch family. It owns 31.4 per cent of VW (53.3 per cent of the ordinary shares), with further investments in data analytics, lidar and software companies, such as self-driving car business Aurora.

Remove the value of those smaller investments, however, and you’re left with VW ordinary shares worth some €42bn at pixel time. Yet the holding company trades at a market capitalisation of €26bn, according to S&P Global data. That’s a discount of 39 per cent. So in theory, you can buy Porsche SE, and wait for the discount to close to make money, regardless of whether the market comes around to VW’s shares as a way to play the electric car gold rush.

Good idea then? Well, no. The problem is, unlike the target of delivering 1m electric vehicles in 2021, a discount to net asset value is not an easy story to tell to the market. And, in this sort of market environment, stories matter. To that point, over the past five trading days Porsche SE’s preference shares have returned 13.3 per cent. VW’s preference shares? 17.5 per cent.

It’s a funny one. You can imagine an analyst bounding up to his portfolio manager with the pitch that “not only is the market underpricing VW’s electric vehicle plans but we can buy these shares at a discount via Porsche SE, and also get the optionality of these other assets for free.” “Great idea. Let’s put it on,” the portfolio manager might say. After all, it’s a clever pitch, the sort that fund managers like to chat about as a sign of their sophistication when trying to raise capital.

But sometimes, you can be too cute for your own good. In the case of VW, this just might be one of those times.

Related Links
Volkswagen is the new Tesla — FT Alphaville
The day Volkswagen briefly conquered the world — FT Alphaville