**Kuala Lumpur**: Porsche AG lowers 2024 profit margin forecast to 6.5% from 10%, impacted by US tariffs, a 42% drop in China sales, and slow electric vehicle adoption, with operating profits down 40% and plans to cut jobs and revise strategy.
Porsche AG has announced a significant reduction in its profit margin expectations for the year, citing challenges from US tariffs, weak electric vehicle (EV) adoption, and slumping sales in China. The German luxury car manufacturer now projects its return on sales to drop to as low as 6.5%, a sharp decline from an earlier forecast of at least 10%. This updated outlook was shared on Monday evening.
One of the prominent issues affecting Porsche’s financial performance is the impact of US tariffs. The company reported that tariffs imposed by the US government have already hit sales in April and are expected to continue affecting performance in May. Without further price increases, the annual cost of these tariffs could reach €2 billion, according to Citi analyst Harald Hendrikse. These tariffs were enacted as part of President Donald Trump’s decision to impose a 25% levy on imported cars, placing Porsche at a disadvantage as it relies entirely on imports from Europe to supply the US market, its recently largest sales region boosted by demand for its Macan and Cayenne SUV models.
“The macroeconomic situation will remain challenging,” Porsche’s chief financial officer Jochen Breckner said in a statement, adding that the company “can’t completely escape this.”
The tariff situation has forced strategic shifts not only at Porsche but also among other European automakers. Ferrari NV has raised prices on certain US models by up to 10%, while Mercedes-Benz Group AG is contemplating withdrawing its entry-level vehicles from the US market. Renault SA has indicated it may delay launching its Alpine sports-car brand in the US. Recently, the White House clarified that imported cars would not be subjected to double tariffs on aluminium and steel and allowed for partial reimbursement of duties on imported parts relative to domestic car production.
In addition to the tariff-related challenges, Porsche is grappling with a substantial downturn in its China sales. Vehicle sales in China declined by 42% in the first quarter, marking the worst quarterly performance for Porsche in the country since 2013. The company attributed this to “challenging market conditions” and increased competition from domestic players such as BYD Co. These market difficulties have prompted Porsche to re-evaluate its strategy, including a reshuffle of board members and planned job cuts in Germany aimed at reducing costs.
Compounding these issues is the slow uptake of electric vehicles. The subdued EV demand means Porsche will cease plans to independently expand production of high-performance batteries through its subsidiary, Cellforce. This decision will add to the company’s one-off expenses this year, expected to total €1.3 billion (approximately RM6.43 billion). In response to lukewarm EV sales, Porsche also decided on an €800 million investment this year to broaden its offering with additional combustion-engine and plug-in hybrid models. The company had already moderated its medium-term return-on-sales target to between 15% and 17%, down from a previous target of up to 19%.
The combined effect of these challenges has significantly weakened Porsche’s financial results for the first quarter. Operating profit slipped by 40% to €760 million compared to the previous year, while the return on sales was recorded at 8.6%, representing the first-ever single-digit quarterly return. Consequently, Porsche has revised its revenue forecast downwards to as low as €37 billion, compared to the earlier range of between €39 billion and €40 billion.
Harald Hendrikse of Citi noted in an analysis, “Although the key challenges aren’t of Porsche’s own making, it has work to do to exhibit greater control of its problems.”
The Edge Malaysia is reporting on the developments as Porsche navigates the complexities of trade policies, competitive pressures, and evolving market demands.
Source: Noah Wire Services
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