The auto industry is suffering what may be its worst slump in its entire history, but briefly, German automaker Volkswagen (a car company!) saw its market cap surpass Exxon. The company’s shares have had a great year, spiking anew on a massive short squeeze, spurred on when majority owner Porsche said it would up its stake to 75%:
IHT: Volkswagen rose as much as €485.01, or 93 per cent, to €1,005.01 and was up 55 per cent as of 11:10 a.m. in Frankfurt trading. The Wolfsburg, Germany-based Volkswagen has risen more than fivefold this year and at its intraday peak was valued at €296 billion, or $370 billion, more than Exxon Mobil’s $343 billion market value at Monday’s closing price in New York, according to data compiled by Bloomberg.
Bloomberg reports that German regulators are looking into the bizarre events, but aren’t doing anything formally. Of course, eventually things will come back into whack, but in extreme situations efficient markets can do some pretty crazy stuff. We’re reminded of when PetroChina briefly carried a market cap of $1 trillion last year after its China market debut. That was due to an incredible demand for shares, pushing its mainland market cap well above the value of its ADRs. Things eventually even out, but in the short term, people can either get creamed or make a ton of money depending on which side of the absurdity they happen to be on.
Short squeeze aside, it’s also worth noting that not all car companies are doing terribly, like the Detroit three are. Unlike, say, print newspapers, cars aren’t going obsolete. Neither is car manufacturing. We’re not yet at the place where new cars are printed out, or carved out of a single block of steel. The problem with certain car companies is years and years of mismanagement that can’t be corrected by layoffs or a bailout. We can lose some big players and it doesn’t mean the car industry is dead.