SMM: currently, General Motors has a total market capitalization of $43 billion; Volkswagen Group has a market capitalization of 73 billion EUR, about 6.50 times last year's earnings. Tesla, by contrast, is valued at a staggering $352 billion despite his low profits, while some emerging players in the electric car sector, such as Rivian Automotive and Nikola, are valued at billions before they even start delivering electric vehicles.
The market's favor for Tesla and other rookies of electric car companies is expected to be very frustrating for traditional carmakers such as Volkswagen and GM. Tesla at least has impressive software and battery technology, while other "rookies" now only know how to build a decent electric car. Traditional carmakers are spending tens of billions of dollars on electrifying their products, but they are just not very good at getting praise.
Some environmentally conscious investors refuse to ignore the fact that traditional carmakers are still producing large quantities of fuel SUV. So for traditional car companies, the best way is to spin off the electric car business so that the market gives them valuations similar to those of Tesla.
Both GM and Volkswagen have made big bets on electric cars. The two companies are becoming increasingly competitive in battery technology and have sought partners to build their own battery factories, as Tesla and Panasonic have done. In addition, the new electric cars from GM and Volkswagen are also eye-catching. This fall, GM will launch an electric version of the Hummer, which will compete directly with Tesla's Cybertruck, while Volkswagen has just launched a compact ID.3 hatchback based on the new MEB platform. It is worth mentioning that Volkswagen is licensing the MEB platform to automakers, including Ford, so the MEB platform could become a cash cow.
The spin-off of Volkswagen's electric car business will help unleash value and make it easier for the company to raise money.
Volkswagen may overtake Tesla to become the world's largest electric car maker in 2022, when it will sell more than 1 million electric vehicles, according to Tim Rokossa, an analyst at Deutsche Bank. GM's electric vehicle business is valued at at least $15 billion to $20 billion and as high as $100 billion, according to analyst Emmanuel Rosner.
GM has spun off its self-driving business into a separate Cruise unit, which has helped it raise billions of dollars from investors, including Softbank Corp., so there is also great potential for a spin-off of its Ultium battery system and electric car business into a separate business.
In a recent investor conference call, GM seemed open to spinning off its electric-car business. But Volkswagen is more cautious, thanks in part to European emissions regulations, and Volkswagen's traditional business needs to include electric vehicles to keep its fleet's average emissions within European guidelines; the company's complex governance is another obstacle to divesting the electric car business. Rokossa said it might be unrealistic to spin off Volkswagen's MEB business completely, but even separate financial disclosures could help the company's valuation.
Carmakers are also wary of spinning off all the most promising technologies, such as batteries, for fear that investors may see the remaining traditional internal combustion engine business as a "bad bank".
Still, the spin-off of the electric car business has some attractions that are good for both shareholders and workers. Tesla has raised $15 billion from investors over the past decade. At the same time, traditional car companies such as Volkswagen and GM will have to make huge investments in their electric car businesses, which will come from the company's own cash flow, which means the company will have less money to pay its employees.
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