Porsche is preparing for a world that buys fewer of its cars, especially its EVs, but is hoping to keep its position as a profit powerhouse by selling more higher-priced models.
The German brand has long been a key cash generator for the wider Volkswagen Group, thanks to high profit margins, particularly on its 911 sports car and its SUVs. However, in the three months to the end of September, its stellar operating margins slipped to 11% from 17% the quarter before. Profits tumbled below the €1 billion mark to €974 million (£812m) in the quarter for the first time in at least 10 quarters.
During this nine-month period, Porsche was no longer the darling of the group, its 14% operating margin beaten by Lamborghini (28%) and Bentley (16%), even if its actual profits were still double those of the entire Audi brand group (which includes Audi, Bentley, Ducati and Lamborghini) at just over €4bn.
The reason for the slip, according to CFO Lutz Meschke on the company earnings call for the quarter, was due to slumping sales in China, plus model changeovers, specifically the new Macan Electric and the 992.2 facelift of the 911.
Profits may have slipped, but Porsche is still generating billion euros from 70,081 cars in three months, meaning it continues to outperform much of the automotive industry.
However, given that the company has a long-term goal of 20% margins, posting almost half that in the most recent quarter has concerned investors who have banked on Porsche being one of the more resilient stock picks in a troubled period for listed car companies.
Porsche’s most immediate problem is China, where sales slumped 29% in the first nine months amid lower demand for luxury and premium cars in general. “The situation is still very challenging,” Meschke said.
Sales of just over 43,000 so far will translate to around 60,000 this year, which isn't enough when the brand is set up to sell 100,000. It’s so bad that Porsche doesn’t think it will hit 2022’s heights of 93,286 cars in China again and is shrinking to adapt.
“The dealer network and also our wholesale organisation is more oriented towards 100,000 cars a year. Therefore we have to right-size our dealer network,” Meschke said.
The loss of China as Porsche’s biggest market means the company needs to be leaner and fitter to maintain and grow its profit margins with fewer cars.
It will cut costs to the point where it's “highly profitable with car sales of just 250,000 cars per year”, Meschke said.
The drop in sales is a new phenomenon for Porsche, which has grown strongly in recent years to deliver 320,221 cars in 2023, up from 309,884 in 2022 and 297,289 in 2021.
Overall this year, sales were down 12% at 226,026, and Porsche is preparing for ongoing flat sales next year, due to its weakness in China and slower Macan sales after the switch to electric power in European Union markets.
“We cannot expect significant recovery in the upcoming years when it comes to the BEV segments,” Meschke said.
Lower sales have knocked on when it comes to developing new cars, with analysts told to expect a “significant reduction” in Porsche's R&D and capital expenditure costs.
An immediate focus will be on refreshing the brand's ICE models.
“A lot of customers in the premium luxury segment are looking in the direction of combustion-engine cars, and therefore we will react also in our product cycle,” Meschke said.
What we don’t know is how that will impact Porsche's electrification plans, which include a Cayenne Electric, a larger EV (dubbed K1) based on the Volkswagen Group’s new SSP Sport platform and electric successors to the 718 Boxster and 718 Cayman sports cars.
The Cayenne Electric has been spotted testing ahead of a likely 2026 launch, and the K1 is expected in 2027. Meschke declined to answer a question on the K1 when asked by analysts.
Porsche has said it's targeting 80% EV sales globally by 2030, but that looks likely to slip, with the US market potentially a lost cause with EV sceptic Donald Trump taking charge.
The rosiest element of Porsche’s near-term future remains the 911, the 992.2 facelift of which introduces the first hybrid version, driving higher average sales prices.
“In 2025, we expect the mix [the percentage of higher-priced models] to materially pick up, thanks to the 911 and the availability of other key models,” Tim Rokossa, analyst at Deutsche Bank, wrote in a note to investors.
Porsche is expert at luring customers into buying ever pricier versions of its long-running sports car. At its recent investor day, held at Silverstone, it reminded guests of successful specials including this year’s €274,000 911 Turbo 50 Years (limited to 1974 units) and last year’s €292,000 911 S/T (limited to 1954 units).
There was also talk of Porsche’s Sonderwunsch (special request) programme, which creates one-offs from existing cars with an entry price of €100,000.
The company is hopeful that the EV slump of 2024 – during which it had to pause production of the Taycan – is going to be short-lived as buyers appreciate the recent overhaul.
“It's a situation which is not satisfying, because the Taycan is a fantastic car,” said Meschke. “We are confident that we will see a recovery.”
