Porsche aims to drive up profit by $9b

Volkswagen's cars at the storage-facility auto tower at the company headquarters in Wolfsburg, Germany. Porsche plans to streamline its operations over the next eight years and invest more to develop and manufacture electric cars.
Volkswagen's cars at the storage-facility auto tower at the company headquarters in Wolfsburg, Germany. Porsche plans to streamline its operations over the next eight years and invest more to develop and manufacture electric cars.PHOTO: AGENCE FRANCE-PRESSE

Porsche has an ambitious plan to improve operating profit by €6 billion (S$9.36 billion) over eight years by streamlining operations as the carmaker spends more to develop and manufacture electric cars, according to people with knowledge of the matter.

Porsche aims to increase earnings before interest and taxes by about €750 million annually over a time frame starting this year and running to 2025 by increasing efficiencies, cutting costs and boost contribution from new business, such as digital offerings, said the people, who asked not to be identified because the discussions are private.

The increase is necessary to maintain the Volkswagen (VW) brand's target of a 15 per cent return on sales. Porsche declined to comment.

Keeping returns flowing at Porsche is key to Volkswagen's plan to make the world's largest carmaker a more agile company and face the industry's unprecedented shift to self-driving and electric cars head on. Carmakers readying electric line-ups are pushing for savings elsewhere to offset lower profits from battery-powered cars when compared with vehicles with combustion engines.

Take Porsche's first electric offering as an example of the quandary facing carmakers. Cars like the four-door Taycan, which comes to market next year, will cost from €6,000 to €10,000 more to produce than a comparable traditional model, the people said.

Those costs will not be passed on to customers, meaning spending reductions need to be made elsewhere to maintain profitability, they said.

In total, the sports-car maker is investing more than €6 billion to 2022 on electric mobility.

After 2025, the German manufacturer anticipates that the efficiency push will improve profit by about €2 billion annually, the people said.

VW's most profitable brand generated €4.1 billion in operating profit and €23.5 billion in revenue last year. The operating margin of more than 17 per cent compares with single-digit return on sales at most mass-market carmakers.

VW is on its way to become "the electric powerhouse within the auto world" and should have higher revenue and earnings momentum than Daimler and BMW, Bankhaus Metzler analyst Jurgen Pieper said in a note.

Porsche is working on electric-car technology with sister brand Audi and is considering using the jointly developed underpinnings to offer electric versions of existing models such as the Macan compact sport utility vehicle. Porsche has said the first cars from the new platform are planned for late 2021.

Porsche expects half of deliveries will be fully-electric or hybrid cars in 2025. Developing vehicles with combustion engines won't be economically viable from 2030 under the goals of the Paris climate accord, it said.

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A version of this article appeared in the print edition of The Straits Times on November 26, 2018, with the headline 'Porsche aims to drive up profit by $9b'. Print Edition | Subscribe