'This is a major crisis' Why Porsche puts the brakes on EVs | DW News

Key Concepts

• Profit Plunge: Significant decrease in profitability.
• Combustion Engines: Traditional internal combustion engines that burn fuel.
• Electric Vehicles (EVs): Vehicles powered by electricity stored in batteries.
• Mission R: Porsche's electric car concept embodying performance, design, and sustainability.
• Product Rejig: A significant change or overhaul of a company's product strategy.
• Luxury Market Slump: A decline in demand for high-end goods and services.
• EV Conundrum: The complex challenge of balancing EV development with current market realities.
• Margins: The difference between the selling price of a product and its cost.
• Special Costs: Unexpected or one-off expenses incurred due to strategic shifts or restructuring.
• Battery Manufacturing Facility: A plant for producing batteries.
• Diverging Market: A market where different segments are moving in opposite directions (e.g., some segments embracing EVs, others not).
• EU 2035 Target: The European Union's goal for all new car sales to be zero-emission vehicles by 2035.
• Automotive Industry Backbone: The crucial role of the car industry in the German economy.
• Job Losses: Reductions in employment within the automotive sector.
• Budget Gap: A shortfall in expected revenue or funding.

Porsche's Profitability Crisis and Strategic Shift

Profit Decline and Financial Impact

Porsche experienced a dramatic 96% plunge in profits during the first nine months of the current year. This significant downturn is attributed to a strategic pivot by the company. The iconic sports car maker recorded a spectacular third-quarter loss of almost €1 billion euros. Operating profit, which excludes certain costs like taxes, fell to €40 million for the first nine months. This financial hit is partly due to the substantial costs associated with Porsche's parent company, Volkswagen, taking a punishing €5 billion profit hit to cover the expenses of Porsche's product rejig.

Strategic Shift: From EVs to Combustion Engines

Porsche's profit decline is directly linked to a change in strategy, moving away from an aggressive electric vehicle (EV) push and refocusing on combustion engines. This shift was prompted by weak demand for its electric vehicles and the significant costs associated with the original aggressive EV strategy.

• Initial EV Ambition: Porsche had previously revved up its EV strategy with the launch of its electric car project, Mission R, which was presented as embodying "Performance, design and sustainability. All electric, high performance and efficient."
• Strategic Reversal: In September, Porsche announced it would delay the introduction of some fully electric cars and extend the life of some combustion engine and hybrid models.
• Cost of Reversal: The decision to go back to more combustion engines and delay the EV push is estimated to be eating €3.1 billion by 2025. This also involved shelving a battery manufacturing facility that had already incurred substantial costs.

Market Challenges and Global Factors

Several external factors are contributing to Porsche's difficulties:

• Slump in China: Porsche is wrestling with a severe slump in its top market, China. The collapse of the luxury market there has hit demand, and local manufacturers are raising their game. In the first nine months of the year, Porsche sold just under 32,200 cars in China, down around a quarter on the previous year.
• US Tariffs: Porsche is particularly vulnerable to Donald Trump's tariffs as it has no manufacturing footprint in the United States. This vulnerability might force Porsche to set up a factory there.
• Diverging EV Demand: The global market for EVs is described as diverging. While there is an "incredible hunger for EVs" in China, at the luxury end, consumers are not buying top-end EVs. This creates a situation where carmakers must produce for both EV-embracing and non-EV-embracing markets.
• EU Regulations vs. Market Reality: In Europe, there is a requirement to make only EV vehicles by 2035. However, Porsche is pushing back, stating, "Whoa, whoa, slow down. It just doesn't make sense. We have to sell what actually makes money for us." This sentiment is echoed by other manufacturers, and the German government is supporting a push to slow down the 2035 target for all new sales being electric vehicles in Europe.

Sales and Margin Issues

While overall sales and turnover only dipped by about 6% with more than 200,000 vehicles being delivered, the problem lies in what is selling.

• Lower Margin Vehicles Selling Well: The vehicles that are selling especially well tend to be those where the margins are a little bit lower.
• Top-End Product Maximization: Porsche's goal is to maximize sales of its top-end, high-performance vehicles, which presumably bring in the highest margins and make the most money per car. The current sales mix is not achieving this.

Leadership Change and Investor Sentiment

To address these challenges, Porsche has appointed ex-McLaren boss Michael Lighters as the next CEO, who will take over in January. His mandate is to revive demand in China and resolve the EV conundrum. However, investors remain to be convinced.

Broader Impact on the German Automotive Industry

Porsche's struggles are symptomatic of a larger crisis in the German automotive industry, which has historically been the backbone of the German economy.

• Widespread Job Losses: In a one-year period ending in spring 2025, 50,000 job losses were seen in the German automotive industry, leading all other industries in job cuts.
• Cost Cutting Measures: The combination of falling sales, increased competition from China, and expenses for meeting EU goals necessitates fast cost-cutting. This includes job cuts and a curb on services in auto cities like Ingolstadt (Audi) and Friedrichshafen (ZF Friedrichshafen).
• Impact on Ordinary Germans: These cuts are "reaching into the pockets of normal Germans," indicating a major crisis.

Conclusion

Porsche's significant profit decline is a stark indicator of the complex challenges facing the automotive industry. A strategic shift away from aggressive EV adoption towards a renewed focus on combustion engines, driven by weak EV demand and high associated costs, has led to substantial financial losses. This is compounded by a slump in the crucial Chinese market, potential US tariff impacts, and the divergence of global EV market sentiment. While sales volumes have remained relatively stable, the mix of vehicles sold is impacting profitability. The situation is not isolated to Porsche, reflecting a broader crisis within the German automotive sector, characterized by job losses and the need for significant cost-cutting measures, impacting both the industry and the wider economy. The appointment of a new CEO signals an attempt to navigate these turbulent waters, but investor confidence remains a key hurdle.