(Bloomberg) -- Porsche AG is targeting new cost cuts to stabilize margins as a supply-chain snag is set to choke production of several models.
The luxury-car maker on Tuesday cut its annual outlook after supply of aluminum parts was affected by flooding in Switzerland. To counter the expected production and delivery disruptions set to last some weeks, Porsche is seeking additional savings to hold margins stable, it said during Wednesday’s earnings presentation.
The supply issues overshadowed a better second quarter for the 911 maker, which has been weighed down by costly new model rollouts and consumers in China putting off purchases.
Operating returns rose to 17% in the three months to June compared with 14.2% during the first quarter, partly driven by the revamped Panamera and Taycan starting sales.
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Porsche’s performance has deteriorated in recent months amid waning demand for EVs and a broad and costly overhaul to its model portfolio. In China — where the company’s deliveries have declined for five quarters in a row — consumers are shying away from big-ticket purchases as a protracted real estate crisis puts off luxury buyers.
During the first half, operating profit fell by just over a fifth to €3.06 billion ($3.4 billion), though that still beat an average analyst forecast of €2.89 billion. The operating return on sales for the period fell three percentage points to 15.7%.
Chief Executive Oliver Blume said “many of our customers” are affected by the China real estate crisis, according to an analyst call transcript. “We have a very clear decision not to follow the general market environment in terms of pricing discounts.”
Better product availability also helped compensate for challenges in the second quarter, Porsche said. Demand for the new 911 GTS-S T-Hybrid, presented in May, has “exceeded our expectations,” Blume said in a statement.
The shares rose as much as 3% in Frankfurt with the stock still down around 12% since the start of the year.
The company has billed next year as a time of re-acceleration on the back of new cars like the all-electric Macan. Chief Financial Officer Lutz Meschke said Porsche is set to hit its mid-term margin corridor of 17% to 19% next year, boosted by the refreshed lineup with factories set up to adapt to changes in demand on EVs.
There will be a “a reduction in research and development costs in the coming years” as part of its ongoing cost-saving program, Meschke told journalists during Wednesday’s earnings call. “We can realize synergies in production costs in the coming years.”
“There is an obvious product-led recovery story for Porsche,” but base earnings for this year and the timing of that recovery “continue to deteriorate,” Citi analyst Harald Hendrikse said in a note.
What Bloomberg Intelligence Says:
Porsche’s sequential rise in Ebit margin to 17% in 2Q (vs. 14.2% in 1Q and consensus at 16.6%) represents a glimmer of light after the July 23 profit warning on supply constraints, and we don’t foresee any change to our 2025 outlook that was boosted by four new product launches this year. The Ebit margin improvement highlights Porsche’s robust core profitability with a strong 911 mix, despite China 2Q sales being down 41% and a robust €1 billion in free cash. The China sales mix of 20% in 2Q provides more balanced global exposure.
-Michael Dean, BI automotive analyst
The supply chain woes this week follow issues in getting parts for the Taycan last year, prompting deliveries to crater. Adding to the string of negative news, Porsche this week also walked back its electric-vehicle sales ambitions.
“As the transformation to electromobility is developing very differently around the world, we have already started to recalibrate and reprioritize projects and products” for combustion-engine technology, Porsche said Wednesday.
While Porsche says 2025 will see a turnaround, the outlook — particularly for EVs — remains unclear. Carmakers including Mercedes-Benz, GM and even Tesla have adjusted their EV ambitions because demand hasn’t met expectations. In China, the biggest auto market where luxury electric models haven’t been selling well, drivers are gravitating to cheaper, locally made EVs.
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