Transcription
It's been reported by German media that Porsche will have to write off $20 billion in losses thanks to its tie-in with the Volkswagen group. Apparently, there's also an additional €2 billion write-off, which means that instead of making a profit for the first time in many years, the Porsche group will actually incur a significant loss by the end of this year. Obviously, this will have a huge effect on Porsche's stock price.
Hello, my friends! Welcome to the channel. I'm Sam Evans, and you're watching The Electric Viking. Great to have you with us. The collapse of the Volkswagen group appears imminent, and Porsche is being affected by this. Porsche's sales were down 42% in the third quarter of this year. This is a crisis that could potentially engulf all of Europe. The automotive industry is very much entrenched in Europe; without it, Europe could see its GDP start to fall.
Now, Spiegel, a German publication, has reported in German, and I'm translating from this, so it's not going to be a perfect translation, that they will have to write off billions and billions of euros. The car manufacturer Volkswagen is in the midst of a deep crisis, says the German media. The owner holding company, Porsche SE, which has a fair investment in the Volkswagen group, will have to write off enormous sums on its holdings in Volkswagen. The amount will be around €20 billion, or around $22 billion. The holding and sports car manufacturer Porsche AG is also expected to be subject to write-offs of up to €2 billion.
The listed holding company of Volkswagen's owner families, Porsche and Pich, announced on Friday—just within the last few days—that Porsche themselves will have to write off more than €2 billion worth of investments, which will affect their bottom line this year. Not just their bottom line; this is going to affect their ability to invest in the future and their ability to easily get low-interest loans, which is what car manufacturers need in order to keep building cars. Huge amounts of money are needed, and this is driving Porsche SE deep into the red this year, says Spiegel.
The profit forecast, which was only reduced in September by a billion dollars to between $2.4 billion and $4.4 billion, is no longer valid. Porsche themselves said their profit forecast has been canceled; they won't be making a profit. They said, "This is a direct quote from Porsche: it will be significantly negative." They did go on to say, though, that the owners will still get their dividend; the dividend just won't be as much as usual. I don't know how this can work; it seems insane.
Volkswagen, though, is in crisis, say the German media. The owner holding company justified this move with a lack of planning by Volkswagen, or they basically are blaming Volkswagen. Volkswagen postponed the planning round in November due to the dispute over the announced savings program. The tug of war over the future of both companies, Porsche and the Volkswagen group, along with the many brands underneath them, is hindering the group's plans for the next few years, on which the valuation by the major shareholder is normally based. It is no longer expected that the investment plans of the Volkswagen group and Porsche group will be approved before the end of the year, especially because so much of that depends on what the unions have to say about it.
Now, apparently, what's going to happen here is Porsche SE will have to resort to external valuations. In other words, they're getting external valuators to come in and try to sort the mess out. Remember, the ownership structure of the Volkswagen group, Porsche, and everything else between them is incredibly complex. Some YouTubers have tried to explain it, but it's still complex. It's so difficult to understand. What this means is the result is a devaluation of €7 billion to €20 billion for the share in the Volkswagen group and around €2 billion for Porsche AG.
Now, Porsche is not being particularly transparent here. I don't really understand the $2 billion write-down for Porsche. What are they talking about? Are they talking about the 40 dealerships they're closing in China? Are they talking about something else? I'm not sure. The board of management has been wrangling with employee representatives for weeks over deep cuts in production and the desperate need to close several factories. Initially, it was believed to be two; then the CFO said it might have to be three.
Porsche SE continues to support the entire Volkswagen group in achieving strategic goals and remains convinced of the long-term value-enhancing potential of the core investments, said Porsche. Critics accuse the struggling automaker of having slacked off on the development of electric cars, among other things, and to be fair, it's true. Federal Minister of Economics Robert Habeck also recently called for more efforts from Volkswagen. "There must be offers in the area of electric cars for around €20,000 that everyone can afford," said the Green Party's candidate for Chancellor on Friday at a Handelsblatt event in Berlin. "Your name is Volkswagen, not luxury cars."
So, internally in Germany, there is a belief that the Volkswagen group is charging too much for its electric cars and intentionally doing so because it loses money on all of them. Even if it were to discount them, it would still lose money. This is pretty accurate, to be honest. I mean, look at the price: the average transaction price of EVs in Europe has increased. It's the only place in the world where, over the past 12 months, the average transaction price for electric cars has gone up. Why? I mean, battery pack prices came down by 53% over the past 12 months. The most expensive part of the car, by a mile, has come down in price—at least the cells themselves, the battery cells themselves—by 53%, from around $90 to $53. Now, that's coming from major manufacturers who have released that data; that's just not some made-up media number.
And yet, Europe is selling EVs at higher prices than ever before. This is not the case in the United States; EV prices have fallen. EV prices have fallen in Australia, Thailand, and China. Pretty much everywhere you look, EV prices are falling, but not in Europe. Is the Volkswagen group partly to blame for this? Well, this is a question I have for you as an audience: if 90% of the cars the Volkswagen group made were fully electric and 10% were petrol, how much would it cost to manufacture those gasoline-powered cars?
Moore's Law says that for every doubling of production, the price reduces by 20%. What this means is that because Volkswagen only made small numbers of EVs, the cost of production is still quite high for them. Whereas other manufacturers like BMW, Tesla, and other Chinese manufacturers, because they are making such large numbers, can actually sell them at a profit. So, the Volkswagen group is blaming China, blaming electrification, and apparently blaming people, according to the Volkswagen group, saying that they don't want to buy EVs when we know EV sales worldwide have grown by 26% over the past 11 months.
So, the demand is there, but for some reason, Volkswagen's EV sales this year have actually gone nowhere. In fact, they've decreased versus last year. Now the group is in a crisis; they have more than $190 billion in debt. They're closing factories; they just sold a factory in China. They're having to close other factories around the world. They just attempted to sell an Audi factory in Belgium. In my opinion, this story is playing out in a very similar way to Nissan. Let me know what you think in the comments.