At the beginning of September 2022, German automotive company Volkswagen Group announced its plans to conduct an initial public offering of its Porsche stock to raise additional funding for its electric vehicle production. According to reports, Volkswagen intends to overtake Tesla by the end of 2023.
In this article, we discuss the prospects of both Volkswagen AG and the VW stock.
- What is Volkswagen?
- Ten years of income for investors
- VW stock: Key growth points
- The Porsche IPO
- VW stock: Growth prospects
- What can be expected next?
- Seize the opportunity
Interact with the underlined words and green dots to get additional details and explanations.
Explanations and definitions of terms.
What is Volkswagen?
The name of the Volkswagen company is known all over the world and has become synonymous with German quality and pedantry. True to its name, this automobile company embodies the concept of the “people’s car,” and comprises 342 companies associated with mechanical engineering.
As of October 2022, Volkswagen AG owns 75% of the shares of Porsche Zwischenholding GmbH.
In the first nine months of 2009, Volkswagen was the world’s largest car manufacturer.
How did Porsche end up in the hands of Volkswagen?
In early 2009, Porsche took out a $10 billion loan to buy Volkswagen. However, due to the Global Financial Crisis and a downturn in the automobiles industry, it couldn’t acquire the required 75% stake, and the deal did not take place.
In winter of the same year, Volkswagen bought out a 49.9% stake in Porsche for €3.9 billion, promising to acquire a full package of securities in the coming years. In 2012, Volkswagen purchased the remaining 50.1% stake in Porsche for €4.6 billion, this time becoming the owner of Porsche.
Ten years of income for investors
Having overcome the 2008–2009 Global Financial Crisis crisis, Volkswagen stock showed stable results in the global market, which led to investor interest in buying VW stock. Take a look at the year-on-year changes in the VW stock price over the past 12 years.
- 2010: 16.74%
- 2011: 22.12%
- 2012: 15.51%
- 2013: 7.66%
- 2014: 3.29%
- 2015: 20.15%
- 2016: 5.30%
- 2017: 11.27%
- 2018: -2.86%
- 2019: 7.74%
- 2020: -10.46%
- 2021: 4.78%
Despite some hitches, Volkswagen has been steadily growing for a decade. For this German automotive company, though, there are no brakes on its progress.
VW stock: Key growth points
Demand creates supply, and at present, demand for electric vehicle technology is gripping the world. The well-known Tesla company, represented by Elon Musk, has been setting the trend in progressive electric cars, but Volkswagen refuses to stall, rather choosing to enter the race and begin developing electric vehicles for the first time in its history.
In 2019, Volkswagen presented its electric car model, ID.3, from which the corporation’s shares grew by 6.5%. But that’s not all.
In February 2022, Volkswagen announced that it was setting big targets for new electric vehicles, thus adding 6% to its share price. On Sept. 6, the corporation announced that it intends to conduct an IPO on its previously purchased stocks of Porsche, causing the VW stock to increase by 5% in one day.
Its latest IPO now complete, the next big step for Volkswagen is competing with Tesla. For investors, this is a great chance to catch a tech trend and financially benefit. How, you might ask? Read on.
The Porsche IPO
The IPO initiated by Volkswagen on Sept. 29, 2022 was the second largest in the history of Germany and the third largest in the history of Europe. The 911 million shares (25%) of Porsche AG were divided into 455.5 million preferred shares and 455.5 million ordinary shares. During the IPO, investors were sold 25% of the company’s preferred shares.
During the IPO, only preferred shares were sold to investors, which do not provide voting rights.
For the initial placement, the price of one share was set at €82.50. The market value of Porsche reached about €78 billion following the IPO. Porsche’s proceeds from the sale of its preferred and common shares amounted to €19.5 billion, €9.6 billion of which will go to Volkswagen, which still holds 75% of Porsche stock.
Interesting fact: Porsche owns 31.4% of Volkswagen’s stock and has 53.3% voting power.
VW stock: Growth prospects
After the IPO, Volkswagen intends to distribute 49%, or €9.6 billion, of the proceeds among its shareholders in the form of special dividends. It is likely that the payments will take place at the beginning of 2023 and have an impact on the value of VW stock.
Volkswagen intends to invest the second part of its profits in the development and production of electric cars. To compete with Tesla, VW management will be reorganizing the company and attracting more specialists. Volkswagen plans to bring the share of sales of its electric cars to 25% by 2026. Reaching this goal is also likely to influence the VW stock price.
What can be expected next?
Volkswagen’s financial statements this year have shown positive dynamics, leading to a growth in share price.
Here are the market’s reactions to the company’s three previous financial reports:
- 2021 annual report on March 10, 2022: stock growth +12%
- Interim report on May 4, 22: stock growth +1.2%
- Half-yearly financial report on July 28, 22: stock growth +3.8%
Based on the positive dynamics in revenue this year and the financial forecast for Volkswagen’s third quarter on Oct. 27, 2022, the car manufacturer’s results are expected to exceed the forecast. This suggests that the VW stock is likely to rise in price.
An excellent financial report can drive growth in a company’s share price, but there is always the risk that the value goes against the forecast.
Seize the opportunity
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Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.
IPO. A process in which a private company becomes a public corporation by offering its shares on the stock market.
Less volatile shares that provide a guarantee to dividends but don’t provide ownership or voting rights.
More volatile shares providing ownership and voting rights, but only provide dividends when the company has excess profit.
A non-recurring dividend payment distributed to shareholders following a successful period, sale of a subsidiary or lawsuit.