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The Porsche Family’s Race to the Top
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When it comes to high-performance sports cars, the name "Porsche" undoubtedly echoes in the minds of automotive enthusiasts around the world. For numerous decades, the Porsche family has not only been a prominent player in car manufacturing but they have also steered Volkswagen to become one of the world's largest and most prestigious family-owned businesses after the dramatic takeover in 2008. In this article, we'll drive through the lanes of Porsche's history, the family's wealth, how Porsche interlinks with Volkswagen, and how this German-Austrian dynasty traces its roots back to pre-World War II Germany.
Key Insights
Ferdinand Porsche's legacy and controversy: Ferdinand Porsche, renowned as the founder of Porsche and for creating the Volkswagen Beetle, also had a controversial past due to his involvement with the Nazi regime during World War II.
Ferry Porsche and the Porsche 356: Ferdinand's son, Ferry Porsche, significantly contributed to the family legacy by introducing the Porsche 356 in 1948, the first car to bear the Porsche name.
Porsche-Piëch family dynamics: The Porsche and Piëch families, united through the marriage of Ferdinand Porsche's daughter to Anton Piëch, have maintained control of the family holding company, Porsche SE, which is the largest and majority owner of Volkswagen.
Wolfgang Porsche and future leadership: Wolfgang Porsche, Ferdinand's grandson, currently oversees the Porsche legacy. As he turned 81 in 2024, the focus shifts to the next generation's leadership.
Ferdinand Porsche: Engineering Meets Controversy
Ferdinand Porsche, the founder of the company, was an exceptional designer and engineer. He left a lasting mark on automotive history with the creation of the iconic "people's car," the Volkswagen Beetle. The concept for the car was developed by Ferdinand Porsche and his team under the direction of Adolf Hitler, who wanted an affordable, mass-produced car for the German people. Thus, his legacy is shadowed by a controversial past. Like many talented German engineers of his era, Ferdinand became deeply entangled with the Nazi war machine.
His close ties with Adolf Hitler also led him to design formidable military tanks and the V-1 flying bomb. While this dark chapter casts a shadow over Porsche's history, it's crucial to recognize that the engineering prowess honed through his collaboration with the German government played a pivotal role in shaping the genesis of Porsche.
Born in 1875, in what is now called Vratislavice nad Nisou, Czech Republic, Ferdinand displayed an early fascination with electricity and mechanics. He pursued his education at the Imperial Technical School in Liberec while sharpening his skills as an apprentice in his father's metalworking shop.
Ferdinand's passion for automobiles began when he encountered a vehicle constructed by Gottlieb Daimler. In 1898, he secured a position with Jakob Lohner & Company in Vienna, Austria, which built coaches for European monarchs and aristocrats. At Lohner & Company, Ferdinand not only contributed to engine design but also ventured into vehicle creation.
Over the next 25 years, Ferdinand collaborated with renowned automobile manufacturers in Austria and Germany, designing groundbreaking high-performance vehicles for brands such as Austro-Daimler, Mercedes-Benz, and Auto-Union.
The Founding of Porsche
Ferdinand founded his own business in 1934, the company that we today call Porsche. Shortly after, the German government asked him to design a practical and affordable "people's car" and provided him with a factory for its production. The outcome was the Volkswagen Beetle, which later became one of the world's best-selling vehicles. Ferdinand's passion for cars was inherited by his son, Ferry Porsche, who took over the business after the war and made the family name legendary in 1948 with the introduction of the Porsche 356, the first vehicle ever to wear the Porsche name.
The Porsche 356 was named after its production number. The "356" designation came from the fact that it was the 356th project that Ferry Porsche worked on. The design of the 356 was heavily influenced by the Volkswagen Beetle and utilized many components from it, including its engine and suspension. The Porsche 356 played a significant role in establishing Porsche as a reputable sports car manufacturer and laid the foundation for the brand's future success.
The 356 was eventually replaced by the iconic Porsche 911, a sports car with a rich history which continues to be produced to this day. Since its introduction in 1963, the 911 has been universally admired for its timeless design. Even though it has undergone numerous updates and improvements over the decades, its unmistakable shape and style have always kept it immensely popular. Remarkably, over a million Porsche 911s have been manufactured since its launch, evolving through eight significant "generations," as they're known within the company. While each generational shift has undeniably improved performance, comfort, and technology, they have all stayed true to the original design ethos.
Porsche's success on the racetrack has been a significant part of its brand identity. The company has a storied history in motorsport, with numerous victories in prestigious events such as the 24 Hours of Le Mans, the Targa Florio, and the Carrera Panamericana. Porsche's racing heritage has not only enhanced its reputation but also contributed to the development of cutting-edge technologies that have been integrated into their road cars.
A few years after the introduction of the Porsche 356 in 1948, Ferdinand suffered a stroke from which he never fully recovered from. He then passed away in January 1951 at the age of 75. After Ferdinand's death, his son Ferry played a pivotal role in the development of the company alongside the Piëch family.
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The Porsche Short Squeeze: Taking Control Over Volkswagen
The Volkswagen short squeeze of 2008 is one of the most dramatic and extraordinary events in financial history. This financial maneuver saw Porsche secretly amass a controlling stake in Volkswagen, leading to a historic short squeeze that caused Volkswagen's stock price to skyrocket and briefly made it the world's largest company by market cap.
In 2005, Porsche SE, then led by CEO Wendelin Wiedeking and CFO Holger Härter, embarked on a mission to gain control over Volkswagen AG. Porsche's management believed that acquiring Volkswagen would secure synergies and boost profitability for both companies. The initial steps towards this ambitious goal began in 2005, when Porsche started buying Volkswagen shares.
By 2008, Porsche had gradually increased its stake in Volkswagen to 42.6% of the company's shares. Additionally, Porsche had secured options to buy another 31.5% of Volkswagen shares, giving it effective control over 74.1% of the company. However, this strategy was kept confidential, and the full extent of Porsche's position remained unknown to the public and other market participants.
Unaware of Porsche's maneuvers, many hedge funds and investors engaged in significant short selling of Volkswagen shares. Short selling involves borrowing shares and selling them with the hope of buying them back at a lower price to profit from the difference. Investors believed that Volkswagen's stock was overvalued and expected it to decline, especially given the global financial crisis unfolding at the time.
On October 26, 2008, Porsche stunned the financial world by announcing that it effectively controlled 74.1% of Volkswagen's shares through direct ownership and options. This revelation caused panic among short sellers, who realized that there were not enough freely tradable shares to cover their positions. With Porsche's control over such a large portion of the stock, the supply of available shares was extremely limited.
The announcement triggered a massive short squeeze. A short squeeze occurs when short sellers are forced to buy back shares at rapidly rising prices to cover their positions, driving the stock price even higher. As short sellers scrambled to buy Volkswagen shares, the stock price surged from around €200 to over €1,000 in just two days. On October 28, 2008, Volkswagen briefly became the world's most valuable company by market capitalization, surpassing even ExxonMobil.
The short squeeze resulted in substantial losses for hedge funds and investors who had bet against Volkswagen. Some funds suffered significant financial damage, leading to widespread criticism and calls for regulatory scrutiny. Critics argued that Porsche's actions were manipulative and lacked transparency, while Porsche maintained that its actions were within legal boundaries and part of a legitimate takeover strategy.
The aftermath of the Porsche short squeeze led to legal battles and regulatory investigations. In 2016, former Porsche executives Wendelin Wiedeking and Holger Härter were acquitted of market manipulation charges by a German court. However, the case highlighted the need for greater transparency and regulation in financial markets to prevent similar incidents in the future.
The Volkswagen short squeeze of 2008 remains a landmark event in both financial and business history. This event further cemented the Porsche family's reputation, as they had now taken control of Europe's largest car manufacturer.
Brands Owned by Volkswagen
As the largest car manufacturer in Europe, Volkswagen owns several of the world's most recognized automotive brands. This impressive portfolio includes Volkswagen, the flagship brand known for its reliable and diverse range of vehicles; Audi, a leader in luxury and innovative technology; SEAT and Škoda, which offer a blend of affordability and quality; Bentley, synonymous with high-end luxury; Bugatti, renowned for its high-performance hypercars; Lamborghini, a symbol of Italian supercar excellence; and Porsche, the iconic sports car manufacturer, which is a part of Volkswagen through Porsche AG.
Should Lamborghini be spun out of Volkswagen?
In 2023, Lamborghini sold 10,600 cars, which is actually less than Ferrari's 13,700. The two car manufacturers also have similar impressive EBIT margins of about 27%. Lamborghini has grown its revenue with a 17% CAGR over the past 6 years, while EBIT had a CAGR of 53% during the same period. Lamborghini sold cars per year between 1999 and 2023:
EBIT margins (FY 2023) of a select group of automakers
Although the companies in this chart employ different strategies, they are all automakers. Ferrari and Porsche clearly stand out in terms of EBIT margins among automotive manufacturers.
Further reading: Pricing Power Through Scarcity: A Case Study of Ferrari
Turmoil Within: A German "Succession" Saga
The torch of ownership has been passed through generations within the Porsche and Piëch families. These two families became interconnected when Ferdinand Porsche's daughter, Louise, married Anton Piëch, solidifying their ownership lineages. They continue to hold the majority ownership and a controlling stake in Porsche SE (the family holding company), which is the largest shareholder of Volkswagen, owning a majority stake as of 2024. Volkswagen in turn owns a majority stake in Porsche AG, the car manufacturing company.
Porsche SE owns 31.4% of Volkswagen AG's equity and 53.3% of its voting rights, thanks to non-voting shares held by other shareholders, giving it effective control of the group. As of July 2024, the market value of Porsche SE's stake in Volkswagen is ~$20 billion.
Like many big families, the relationships within the Porsche-Piëch family have not always been peaceful. The family's history is like a car-themed version of the TV show "Succession," full of fights for control and secrets. In the middle of all this are the different ways the Porsche and Piëch sides of the family went after inheriting their shares from Ferdinand. The way the third generation was raised was very different – the Piëchs were brought up with strict rules, while the Porsches were encouraged to be creative and into arts. The relationship between the families has also been strained at times due to disagreements on business decisions and strategies. These differences, among other things, have repeatedly caused rivalry and arguments between family members since the company's inception.
Despite the tumultuous history, the relentless pursuit of automotive excellence has always remained consistent within the family. For instance, Ferry Porsche played an instrumental role in building the brand into the impregnable fortress it is today. Partly, as previously mentioned, by introducing the first car ever to wear the Porsche name. Also worth mentioning is that Ferdinand Karl Piëch served as the Chairman of Volkswagen between 2002 and 2015, further consolidating the family's position in the automotive sector and interlinking the two families.
Wolfgang Porsche: Carrying on the Legacy
Currently in the driver’s seat of the Porsche family is Wolfgang Porsche. Being the grandson of the legendary Ferdinand Porsche, Wolfgang was destined to be part of this automotive saga and the family legacy. He now serves as the Chairman of the Supervisory Board of both Porsche SE (the family holding company) and Porsche AG (the car manufacturing company), and has also been part of the Supervisory Board of Volkswagen since 2008.
As the curtain draws to a close on the era of Wolfgang Porsche, who turned 80 in May 2023, eyes are now fixed on who will inherit the mantle. The race is wide open, with candidates including Oliver Porsche, Peter Porsche, and Hans Michel Piëch among others.
Learn more about Porsche and the automotive industry
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