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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Being a carmaker demands enormous manufacturing and management skills. Making engines, for example, is hard. It’s unfortunate, then, when all investors see is a dying industry. The European auto market is in a grim spot. But Volkswagen’s sale of a stake in its marine engine business shows there’s sometimes value packed away in the trunk.
VW is selling a majority share of Everllence to Bain Capital, and expects to receive proceeds of €7.4bn. While it hasn’t said how much of that is equity versus debt, it seems probable that Everllence has an enterprise value of at least €10bn, or roughly 30 times its 2025 operating profit.
That would be outlandishly high for a company that just made cars: VW’s overall valuation is 17 times operating profit, according to S&P Capital IQ. But engines go in other things too. Everllence reckons it has a growing market in data centres that need backup power generators. Finland’s Wärtsilä, which designs engines for large cargoes, trades at about 20 times next year’s operating profit. Caterpillar, maker of industrial engines and emergency power systems for data centres, trades at closer to 35 times.
The Everllence deal, the proceeds of which amount to 17 per cent of VW’s market capitalisation, isn’t the first indication that car companies have valuable assets and skills that may not be fully apparent. Some repurposed their facilities to produce ventilators in the early days of the pandemic.
Nor is it VW’s first attempt at financial tinkering to unlock value. It sold a majority stake in Renk, the German maker of gearboxes and transmissions used in the defence and civil marine industry, in 2020. Four years later, private equity buyer Triton floated Renk in Frankfurt, where it now trades at an earnings multiple far higher than that of its parent. Helped, no doubt, by the rally in defence stocks over the past five years.
In theory, investors shouldn’t need to rummage through VW’s unlisted assets to unearth value. The carmaker’s stakes in listed companies — including Porsche, Traton, QuantumScape, Rivian and Gotion, among others — are together worth roughly €35bn on Thursday’s market prices, not far below VW’s entire market capitalisation. Its commitment to reduce its stake in Traton should crystallise some of that — as should any further streamlining of its footprint and portfolio.
European carmakers trade at horrible valuations because their business is shrinking rapidly: the sector’s operating profit fell by more than two-thirds between 2023 and 2025, on Citigroup numbers. The ride will not be pleasant, but jettisoning valuable assets could make it a little smoother.
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