Breakingviews - Preferred wheels of nouveau riche worth a fortune

Lamborghini Huracan Performante car is seen during the 87th International Motor Show at Palexpo in Geneva, Switzerland, March 6, 2017.

LONDON (Reuters Breakingviews) - If buying a sports car is a classic sign of mid-life crisis, then Volkswagen appears to be maturing gracefully. The Wolfsburg-based automaker is mulling a sale of iconic Lamborghini – the cherished automotive bling of nouveau riche crypto-traders and the offspring of sheikhs showing off on Instagram. Given VW’s planned shift to electric cars, disposing of the gas-guzzling Italian car marque at a hefty profit is eminently logical.

Flogging roadsters which can consume a gallon of gasoline every 11 miles hardly chimes with boss Herbert Diess’s environmentally conscious ambition to become the world’s premier supplier of carbon-neutral vehicles. But pumping kilos of carbon into the atmosphere with every step on the accelerator doesn’t rile the Gallardo Spyder maker’s clientele: annual units increased by a meaty 32% last year, powered by a doubling of demand for the brand’s first so-called “super” SUVs.

As Diess concentrates on transitioning VW away from combustion engines, owning niche, petrolhead brands like Lamborghini – as well as oligarch favourite Bugatti and crotch-rocket maker Ducati – makes little sense. Earlier this year, rival Aston Martin Lagonda deferred its electric-car plans for the foreseeable future. Even $35 billion Ferrari doesn’t plan on bringing out a full battery version before 2025. By then, Diess targets up to 3 million battery vehicle sales, a fifth of VW’s total production.

Putting a value on Lamborghini is difficult as VW doesn’t release its financials. Still, using rough online prices implies it might have made some $2 billion in sales last year on 8,664 vehicles produced. Assume a 16% margin, midway between Audi and Ferrari, and the business would have generated $326 million in operating profit. Put that on a multiple of 25 times to reflect its deep-pocketed customers’ recession-proof demand – a discount to Ferrari at some 33 times last year’s operating profit – and it might be worth $8.2 billion.

Bagging roughly a tenth of VW’s current market value would represent a roaring 82-fold increase on the reported $100 million or so VW paid for the business in 1998. Diess could return the proceeds to shareholders. Or help pay for the 33 billion euros of investments earmarked for VW’s green transition over the next four years. Either way, making a ton of money off the nouveau riche is an easy call.


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