Can the 911 Leader Navigate Porsche Through Turbulent Seas?
Despite once weathering financial storms with ease, Porsche is currently grappling with threats to its profitability. The luxury car manufacturer's overestimation of electric vehicle (EV) sales has left it in a precarious position, and analysts are pushing for a refocus on successful models like the 911 sports cars while scaling back on luxury sedans and SUVs.
China's robust local brands are chipping away at Porsche's profits. Meanwhile, escalating trade tensions between China and the EU could lead to tit-for-tat tariff pressures impacting EV exports. In the U.S., President Trump's proposed tariff reforms and potential no-trade scenario could complicate matters further for Porsche.
Back in 2022, Porsche was spun off by its parent company, Volkswagen, with its chairman, Oliver Blume, continuing to serve as both the chair and CEO. With mounting pressure to address the challenges, Blume is being urged to step down in favor of a dedicated leader.
If U.S. tariffs continue to loom, Porsche may have to establish a factory in the country. The likes of Audi could also follow suit.
The overall narrative for Porsche is looking bleak, according to Berenberg Bank. Sluggish EV momentum, deteriorating market conditions, and underperforming supply chains have all contributed to rising risks. However, the bank expects a rebound in margins by 2025.
Porsche has recently lowered its profit margin expectations for 2023 to between 10-12%, falling short of investors' anticipations of 14% and the mid-term target of 17-19%. As a result, the share price has taken a significant hit, plummeting over 30% since last April.
In an effort to revitalize jettisoned internal combustion engine (ICE) models and plug-in hybrids, Porsche will invest €800 million, while sales of the Taycan EV have dipped. The company is also in the process of negotiating the dismissal of its finance and sales chiefs.
The 75% stake Volkswagen still holds in Porsche means new ICE models will continue to be introduced, including the updated Cayenne and Macan SUVs and Panamera sedans, which were initially slated for electric iterations. A larger-scale SUV, originally an EV, will now also feature an ICE option.
These challenges led to Porsche announcing a cost-cutting plan with 8,000 job cuts last October. Pressure on the share price will persist until sustainable margins (above 17%) are demonstrated.
Porsche's EV demand seems to be underwhelming, while the demand for ICE vehicles still resonates surprisingly well. Furthermore, Porsche is reportedly exploring the option of moving back to its sports cars and reducing its focus on luxury sedans and SUVs.
In essence, Porsche faces an uphill battle to navigate its shift to electric vehicles, maintain sufficient margins, and address mounting trade tensions. Understanding these challenges is crucial for investors and enthusiasts alike.
Porsche, being pressed by the chairman Oliver Blume to address its challenges, is facing calls for a dedicated leader to take over. analysts recommend refocusing on successful models like the 911 while scaling back on luxury sedans and SUVs due to the threat from Chinese brands and potential tariff pressures. Berenberg Bank expects a margin rebound by 2025, but Porsche has lowered its profit margin expectations for 2023. As a result, the share price has fallen significantly. To counter this, Porsche is investing €800 million in ICE models and exploring the possibility of a leadership change. The luxury car manufacturer still relies on Volkswagen for its ICE models and is dealing with underwhelming EV demand.
Jefferies and Bernstein have also weighed in on Porsche's challenges, with Jefferies predicting potential concerns about margins if tariffs persist, and Bernstein suggesting that Porsche should focus more on its sports cars and less on luxury sedans and SUVs. Meanwhile, UBS remains optimistic about Porsche's future, noting that the company's balance sheet remains strong and its models are well-positioned in the market. Despite these challenges, Porsche continues to introduce new ICE models such as the updated Cayenne and Macan SUVs and Panamera sedans.
Under the guidance of Frank Schwope, a well-known analyst at Berenberg Bank, investors are encouraged to carefully consider these challenges and their potential impact on Porsche's future. As Schwope puts it, "It is conceivably that Porsche could find itself in a difficult situation if it cannot navigate these challenges effectively."
