Porsche is seeing its profits increase by focusing on its electric models, like the Taycan.
Auto CEOs have been warning for years about the effects a costly transition to electric vehicles would have on their margins. But ahead of its historic potential listing, Porsche is telling investors it can become more profitable by focusing on the battery.
The Volkswagen-owned sports car maker sees more potential to raise prices for its electric vehicles than its combustion-engine models, chief financial officer Lutz Meschke said at Porsche’s financial market day earlier this week. . He sees the automaker’s margins on electric vehicles reaching parity with combustion vehicles in two years, then rising because customers are willing to pay more for new technology.
The sports car maker – which is planning an IPO in the fourth quarter – has forecast to increase sales performance to more than 20% in the long term, from 16% last year. Management expects eight out of ten Porsches sold by the end of this decade to run on electricity, and electric vehicles to account for half of the luxury car market by 2031.
“Our goal is to selectively expand higher-margin segments and take advantage of EV pricing opportunities,” said Porsche CEO Oliver Blume.
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Porsche is pushing ahead with its IPO at a time when the state of the industry is anything but normal. Automakers are posting strong returns as supply chain shocks limit production, leaving them no choice but to focus on their most lucrative models and raise prices. It’s unclear what will happen once supplies stabilize, but premium profitability in recent quarters will make comparisons difficult down the road.
Porsche has unveiled a new concept, which could be our first look at the next electric Cayman/Boxster.
Porsche is well ahead of peers including Ferrari and Aston Martin when it comes to electrifying its lineup. But while its Taycan EV outsold the iconic 911 last year, the automaker still produces far fewer electric vehicles than Tesla. A more significant ramp-up of electric vehicles will require overhauling factories, retraining staff and securing increasingly scarce raw materials for batteries.
And on top of the uncertainty about where profitability will go once supply chain crises subside, production normalizes, and automakers begin the transition to electric vehicles in earnest, also unclear what will happen to pricing power once EVs are no longer the novelty.
Legacy automakers haven’t been hugely transparent about the profitability of their early battery-powered models. One exception is Volvo, which this week was praised by Bernstein analysts for its degree of disclosure. The company’s electric vehicles – which were 12% more expensive than their combustion cars – generated a gross margin of 15% in the second quarter, compared to 21% for its ICE vehicles. On the positive side, Volvo’s margins on electric vehicles improved by one percentage point from the first quarter.
The exclusively thermal 911 remains Porsche’s most profitable model. The automaker is preparing to introduce an electric version of its popular Macan SUV. The price of the plug-in model is likely to be much higher than the basic gas version. Porsche is also planning a new electric luxury SUV positioned above the Cayenne.
Of course, the Macan has been delayed and won’t hit showrooms until 2024 due to software issues in VW’s Cariad unit. Porsche is now trying to chart its own course on software, but the issues are still raising concerns about future EV introductions. There’s no launch date for the luxury SUV yet, and executives haven’t said much else about the model other than that it will be manufactured in Leipzig, Germany.
CEO Blume says Porsche is unique because the brand has a luxury appeal and benefits from economies of scale – after all, it sold 27 times more cars than Ferrari last year.
Yet maintaining this type of production during the switch to electricity, and increasing margins at the same time, will be quite a challenge.