By Geoff Smith
Investing.com - To some people, Volkswagen (DE:VOWG_p) is like a supertanker: huge, slow and cumbersome - but very difficult to stop when it has momentum. Sometimes, that momentum can surprise even itself.
Europe’s largest automotive group has confirmed it intends to list its truck unit Traton by August, having decided only a couple of months ago that the timing wasn’t right.
Market conditions have gotten a lot worse since then, as U.S. President Donald Trump has stepped up his trade war with China and signalled his intention to start a new one with Mexico (he’s still deciding whether or not to attack Europe head-on).
The market has chosen to interpret the news as a sign of confidence rather than desperation, pushing the group’s shares up 2% in early trading in Frankfurt Tuesday, while Germany’s Dax has bounced only 0.9% after Monday’s 'Sturm und Drang'. The benchmark Euro Stoxx 600 meanwhile was up 0.3% as of 5 AM ET (0900 GMT), while the U.K. FTSE 100 was up 0.2%.
If and when it comes, Traton could be Europe’s biggest IPO this year. Analysts estimate the unit’s value at around 16 billion euros ($18 billion), meaning that a 25% sale would raise €4 billion.
Given that it’s aiming for a dual listing in Frankfurt and Stockholm (the home of Traton’s Scania brand), liquidity will suffer if it tries to sell much less than that.
It turns out that the imperative to list Traton is more powerful than the loss of a billion here or there on the valuation. That imperative is born of VW’s diesel disaster, which has cost it $30 billion in fines and other costs so far (more is likely to come in the shape of an EU antitrust fine for conspiring with BMW (MI:BMW) and Daimler (DE:DAIGn) to keep cleaner technology off the market).
VW’s response has been to plan a huge expansion into electric vehicles, aiming to make a quarter of its global output electric by 2025. That’s a formidable challenge, as attested by reports that it is having to rejig a $56 billion battery purchasing plan because even mighty Samsung (KS:005930) can’t be sure of meeting its delivery commitments.
It’s not clear whether the change of heart on Traton is related, but the execution risks of the electric transition demand a strong balance sheet. They also demand that group management is adequately focused. Letting the truck business go its own way is a step towards both of those goals at once.