Porsche falls into its darkest hour

Author | Chai Xuchen

Editor | Wang Xiaojun

Porsche, a German luxury car brand that has been synonymous with high performance and high profit "money printing machine" for decades, is facing an unprecedented storm.

On October 25, Porsche released its third-quarter financial report. In the first three quarters, the operating profit of this German luxury car leader was only 40 million euros. To put this in perspective, the figure for the same period last year was 4.035 billion euros, a staggering 99% year-on-year drop. Looking solely at the third quarter, Porsche has entered a loss state, with a deficit of 966 million euros for the quarter.

It can be said that Porsche is teetering on the edge of turning from profit to loss.

Porsche's executives pointed out the sources of current profit pressure during the earnings call: strategic restructuring costs as high as 3.1 billion euros; a more severe decline in the Chinese market than expected; and high tariff policies in the North American market eroding profits.

In August, Porsche announced a restructuring of its battery subsidiary Cellforce, abandoning plans for self-developed battery production; in September, it announced the launch of more fuel and plug-in hybrid models. Behind the strategic adjustments is a massive waste of funds, and the indecision in the face of market competition has cost Porsche dearly.

Looking back, the loss of the Chinese market has become a major reason for Porsche's current situation.

In the past, Porsche was a direct beneficiary of China's economic boom. After surpassing the United States in 2015 to become the world's largest single market, its sales increased by nearly 40% from 2018 to 2021. During its glory days, one in every three cars sold globally was in China, with nearly a quarter of the car price being profit.

However, now Porsche's sales in China have dropped from a high of 96,000 units four years ago to 56,900 units last year. In the first three quarters of this year, Porsche's sales in China were only 32,000 units, a 26% decline compared to the same period last year. Currently, its market share in China has shrunk to only 15% of its global sales, halving from its peak.

Three years ago, it was hard to imagine that Porsche, once the top luxury car brand in China that "had no trouble selling," is now struggling to sell.

Since last year, facing inventory pressure, Porsche dealers have offered substantial discounts on many models. The price of the Porsche 911 has started to loosen, with the Panamera coupe having a price reduction space of over 10%; the Macan's price has dropped to over 440,000 yuan after discounts; the million-level pure electric supercar Taycan has dropped to the 600,000 yuan range, with discounts enough to buy a Xiaomi SU7.

From originally being "unable to buy even with a premium," to now "not selling well even with a price drop," Porsche's luxury car myth has been shattered, and the crisis looms.

Analysts pointed out to Wall Street that among Porsche's car-buying customers, 20-30% view Porsche as a ticket to enter the upper class. However, as industries like education and training and micro-businesses that rapidly generate income have declined, this segment of buyers is gradually disappearing; while the remaining high-net-worth customer group is also re-evaluating their choices in the trend of consumption downgrade and the rise of domestic luxury cars Domestic high-end brand practitioners have pointed out that Porsche originally had absolute discourse power in the million-level luxury car market. However, in the past two years, the development of China's new energy vehicle market has been too rapid, with domestic brand car companies flooding into the million-level market, becoming challengers. Brands like Nio, ZEEKR, and Aito have also begun to target the core areas where Porsche operates.

Moreover, in the price range of around 500,000, the entry-level Macan used to contribute significantly to Porsche's sales, but now it is forced to face new competitors such as Xiaomi SU7ultra, Nio ET5T, and ZEEKR 001, which have delivered a dimensional blow in terms of intelligence and electric "horsepower."

Porsche's electric vehicle products, which were originally expected to become the second growth curve, have not only failed to take the lead but have also become a burden. From January to September this year, global deliveries of the all-electric Taycan reached 12,641 units, a year-on-year decline of 10%.

"The wealthy people in China are not consuming less; they just no longer see Porsche as their first choice." A new force executive pointed out to Wall Street Journal, "Porsche is not lacking effort; it's just that the luxury car market in China is no longer what it used to be."

For this German luxury brand, its collapse in the Chinese market and the loss of its global strategy are a microcosm of the transformation difficulties faced by traditional luxury giants in the era of smart electric vehicles.

In the first three quarters, Mercedes-Benz's sales in China fell by 18% year-on-year, leading declines in major global markets; BMW's sales in China fell by 11.2% year-on-year in the same period; similarly, due to the loss of the Chinese market, Mercedes-Benz's sales in the third quarter still showed negative growth.

Faced with the rising momentum of domestic newcomers, traditional giants appear helpless, repeatedly jumping between inventory reduction and price cuts, and maintaining brand tone, as well as between full electrification and a return to fuel vehicles. A century of automotive history also warns later entrants that under the changes of the times, no one can forever hold the throne and remain evergreen.

Falling into its darkest hour, Porsche ultimately compromised with reality, deciding to prioritize profit and re-embrace internal combustion engines.

According to the plan, in the next five years, in addition to the new internal combustion engine models of Cayenne, 911, and Panamera, Porsche will also launch two new B and D series SUV products, with both new cars primarily promoting fuel and plug-in hybrid models.

In terms of electrification, Porsche has not stopped but has become more cautious. Subsequently, Taycan and Macan will continue to push towards full electrification; the all-electric models of Cayenne and 718 will also be launched successively thereafter; in terms of long-term planning, Porsche's all-electric models will be re-planned after the release of a new all-electric platform after 2030. This means that Porsche has postponed full electrification by at least five years.

As for the most important Chinese market, Porsche's senior management admitted during the performance meeting that the sluggishness cannot be alleviated in the short term, but they are still trying to launch a series of combined punches in China.

Porsche is first promoting channel integration and optimization, planning to reduce the number of dealers to around 100 by 2026, increasing investment in first-tier cities, and striving to improve operational efficiency and profitability. Beyond sales, Porsche is also accelerating localization in production and R&D. Recently, Porsche established a research and development center in Shanghai, with a team of 300 people leading the development of a dedicated vehicle system, which will be equipped in all Porsche models by 2026 It seems that Porsche has taken the necessary attitude to regain the Chinese market, but whether these strategies will be effective remains to be seen.

In times of crisis, to help the company smoothly navigate this turbulent period, Porsche has brought in a new leader, appointing Michael Leiters as the new CEO of Porsche. This veteran of Porsche has spent 13 years in the R&D department and was responsible for the development of the Macan and Cayenne, two key products.

Although there is a new strategy and new leadership, there are still countless issues waiting for Porsche to sort out one by one. How to eliminate the deep-seated problems hidden beneath the glorious period amid the rapid changes in the Chinese market is key to Porsche's revival in China