Porsche looks stuck in rival Ferrari’s slipstream
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Neil Unmack
LONDON, July 24 (Reuters Breakingviews) -Porsche’s P911_p.DE shares have performed poorly since a 2022 listing, and rival Ferrari RACE.MI has left the 64 billion euro German group in the dust. Competition in China and production snafus continue to hold it back. The risk for CEO Oliver Blume is that the 911 maker’s valuation drops down closer to that of a normal car company, rather than surging to a Ferrari-style level.
Porsche’s performance since its float has been an eyesore. The operating margin, targeted at 17% to 18% in 2022, may fall as low as 14% this year. That’s barely half the level of Ferrari, which over the same period has added 4 percentage points to its equivalent measure of profitability. Porsche shares have dropped nearly 15% from their initial public offering, and over the past year have even underperformed parent group Volkswagen VOWG_p.DE.
Some of the poor performance reflects temporary factors. New model launches such as the electric Macan require more investment, which hurts profitability but which should lead to faster growth and lower investment in future. Less encouragingly, Porsche also had to slash its forecast production and cut its targets on Tuesday after a flood at a supplier.
The big question is how quickly Porsche can bounce back. Blume still expects a 17% to 19% operating margin over the medium term and a long-term target of 20%, and is pledging to cut costs. One risk, paradoxically, is Porsche’s relative strength in electric vehicles, which are set to reach 24% of total deliveries next year according to Visible Alpha. That may erode margins, given battery rides’ lower profitability. Stifel analysts, for example, are pencilling in a margin of just 16%. Equally, a broader slowdown in battery sales might help, if it means more profitable combustion engine cars.
A further concern is China. The Middle Kingdom made up some 25% of Porsche sales in 2023, but just 19% so far this year, due to an electric-vehicle price war and brutal competition. That’s unlikely to change soon. The longer-term threat is that Europe’s tariffs on Chinese imports may prompt Beijing to whack duties on carmakers that export vehicles to China, like Porsche.
At its peak in 2022, Porsche was valued nearly halfway between a premium group like Mercedes-Benz MBGn.DE and supercar maker Ferrari. It now heaves much closer to its German high-end peers. That’s logical: its luxury 911 brand made up just 15% of its production this year, and its fleet of less exclusive goods may struggle more if the economy sours.
But things could get worse. Porsche now trades on a multiple of nearly 12 times 2025 earnings, more than double Mercedes on 5 times. Yet it’s not twice as profitable, with an operating margin this year only 40% higher than Mercedes’, according to LSEG. That suggests there could be further to fall.
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CONTEXT NEWS
Luxury carmaker Porsche AG on July 24 reported a year-on-year fall in revenue and operating profit in the first half of 2024, with sales declining 4.8% to 19.5 billion euros. Operating profit fell by 20.5% to 3.1 billion euros, equivalent to a margin of 15.7%.
On July 23 Porsche lowered its guidance for 2024, following flooding at an aluminium supplier. The group said its operating margin would be between 14% and 15%, down from 15% to 17%.
Porsche shares rose 1.7% in morning trading on July 24, to 70.16 euros.
Graphic: Porsche and Ferrari’s changing lanes https://reut.rs/4ddWsDh
Editing by George Hay and Oliver Taslic
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