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 almost a 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.
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