AUTONEWS

Porsche says it could write down as much as €20 billion in Volkswagen

Porsche SE, Volkswagen's biggest shareholder, has warned it could write down the value of its stake in Europe's biggest automaker by as much as €20 billion, the latest sign of how VW's cost crisis has shaken investor confidence in the automaker.

The German automaker is struggling with high costs, tough Asian competition and a protracted conflict with powerful unions over plant closures and wage cuts.

Porsche, which owns 31.9% of Volkswagen's equity and 53.3% of its voting rights in the German automaker, said it expects to write down the value of its stake by between €7 billion and €20 billion. The warning was issued on Friday. Based on Volkswagen's current market capitalization, the stake is worth about €14.3 billion.

The German automaker, which has a strong presence in Brazil, is still in tense negotiations with unions over cost cuts at its German operations. VW also failed to complete its financial planning for the year, forcing Porsche SE to rely on analysts’ expectations for its forecasts. Porsche’s problems are not limited to its investment in Volkswagen. The holding company controlled by the Porsche and Piech families said it also expects a loss of €1 billion to €2 billion on its 12.5% ​​stake in luxury carmaker Porsche AG.

 The Porsche group said the losses were rough estimates, citing a “market environment with increasing uncertainty, lower than originally expected demand in several markets and rising geopolitical tensions and protectionist tendencies.” Analysts have warned that the combination of price pressure, lower dividends from joint ventures in China and compromised investments will likely leave Volkswagen with near-zero free cash flow in the coming years, which bodes ill for Porsche SE’s financial stability.

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