Why luxury car makers like Porsche remain so profitable

German auto giant Volkswagen (VW) confirmed yesterday (Feb. 22) that it is in advanced talks to take its luxury sports car division Porsche public. VW would seek to raise at least €20 billion through a Porsche IPO, according to the Financial Times, which would in turn help fund its transition to electric vehicles (EVs).

The company has said it expects half of its sales to come from battery-powered EVs by 2030.

The listing would be one of Germany’s biggest in years, and analysts estimate Porsche’s market cap could be as high as €200 billion — nearly double VW’s current market cap. Porsche is one of VW’s most profitable brands, and has withstood pandemic challenges thanks in part to record demand and investment in EVs.

Porsche had best year ever in 2021

Even as supply chain issues hampered production across the automotive market, Porsche sold more cars than ever in 2021. It reported last month that it sold more than 300,000 vehicles in 2021, besting its previous annual record of 280,800 in 2019. In the US alone, sales climbed above 70,000, a 22% increase from the previous year.

The car maker’s profits were boosted in part by Porsche’s investment in EVs, as sales of its electric Taycan sedan more than doubled from the previous year. During the first nine months of 2021, Porsche sales accounted for about 34% of the profits from VW’s automotive division.

Luxury cars withstood chip shortage

Porsche isn’t the only luxury car brand doing well. Rolls-Royce sales also rose to record highs in 2021, as did those of Bentley vehicles, another luxury brand owned by VW. Aston Martin sales to dealers rose by 82% last year, the company reported yesterday.

Luxury cars have done well during the pandemic in part because they’ve been less hard hit by the semiconductor shortage, as Bentley sales chief Alain Favey explained to the Wall Street Journal last month.

“We are hardly affected by the chip shortage,” Favey said, explaining that auto manufacturers make sure the most profitable cars get chips first. “From that perspective we are prioritized, so we managed to get all of the chips we needed.” This supply chain advantage, coupled with demand from wealthy car buyers who likely got richer during the pandemic, makes brands like Porsche particularly resilient.

If VW does does pursue a Porsche IPO, it could happen in the second half of this year.

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