Detroit and Germany have their own Teslas

When finance types talk about internal combustion engines, they often just use the abbreviation ICE. It’s an appropriate name: Investors have a frosty view of car companies that depend on petrol or diesel to power their vehicles.
Volkswagen AG, the world’s biggest auto maker by sales, has a market value of 73 billion euros ($87 billion), or about 6.5 times the earnings it generated last year. By contrast, Tesla Inc’s all-electric lineup has propelled it to an astonishing $352 billion valuation even though its profits are tiny. Budding Teslas such as Rivian Automotive Inc and Nikola Corp have achieved multi-billion dollar valuations before even delivering their first electric vehicles.
The traditional industry giants of Germany and Detroit, such as Volkswagen and General Motors Co, must be hugely frustrated by the market’s favouring of Elon Musk and his upstart peers. Tesla has impressive software and battery technology, but others know how to build a decent electric vehicle now. Established carmakers are spending tens of billions of dollars on doing exactly this; they just aren’t very good at getting credit for it. Some environmentally focussed investors refuse to ignore the fact that the incumbents still make lots of gas-guzzling SUVs.
So perhaps the answer is for automakers to spin off their electric-vehicle activities to try to get
the market to ascribe them Tesla-like valuations. It’s an approach that’s worked for utilities, which are gradually freeing their renewable-energy assets from the shackles of their legacy hydrocarbon businesses.
GM and Volkswagen have both made massive bets on electric cars. Their battery technology is increasingly competitive and they’ve sought partners to build their own battery-cell plants, as Tesla has done with Panasonic.
Their new vehicles are pretty eye-catching too. In the autumn, GM will launch an electric version of
its hulking Hummer, which could give Tesla’s much-hyped Cybertruck some serious competition. Meanwhile, Volkswagen has just launched the ID.3 compact, the first vehicle built on its new “MEB” vehicle platform, which will be used as the base for its other mass-market electric models.
Volkswagen is licensing the platform to other carmakers, including Ford Motor Co, so it could become a money spinner. The German company will probably pass Tesla and become the world’s largest producer of electric vehicles in 2022, when it should sell more than a million battery-powered cars, according to Deutsche Bank analyst Tim Rokossa. You can see why Rokossa and his American colleagues are urging GM and Volkswagen to separate their electric vehicle activities. This would help unlock value and maybe let the companies raise capital more easily. GM has already separated its Cruise autonomous-driving unit, helping it to raise billions of dollars from investors including SoftBank’s Vision Fund. Why not do similar with GM’s Ultium battery system and the GM vehicles that use it?
Other industries upended by the energy transition are thinking along similar lines. German utility RWE’s shares have soared since it completed an asset swap with rival Eon SE that left it much more focused on generating clean electricity. RWE took advantage of that high valuation by raising 2 billion euros of fresh capital. GM sounded somewhat open to the idea of a green spinoff on a recent investor call, although Volkswagen was more circumspect. In part, this reluctance is partly down to Europe’s environmental regulations.

—Bloomberg