Porsche CFO Talks Huge EV Investments, Profitability Drop, More

6 days ago by Steven Loveday 22

Porsche Mission E Concept

Porsche Mission E Concept

Porsche has made it abundantly clear that electrification is an “enormous burden” and will take plenty of time and investment, but the automaker’s CFO maintains that it will not reduce margins.

Porsche currently maintains a 15 percent profitability margin. Chief financial officer, Lutz Meschke, told Automotive News Europe that the company will invest over 3 billion euros (~$3.5 billion) for EVs and plug-ins. This is a substantial setback for the automaker, but he explained that it will still be business as usual.

Meschke explained that even in the most turbulent of times, the automaker has stuck to its 15 percent goal. Though there may be months or even years that profit margins float up or down, the way in which Porsche manages its monetary strategy has allowed for marked consistency.

He explained that one unforeseen detriment is that Porsche adds about 8,000 to 10,000 euros worth of extras into its electric vehicles, however, unlike their ICE counterparts, the automaker can’t make that money back by upping MSRP. Due to the expense of EVs, pushing that extra back on consumers would be cause for concern.

When asked if it may be smart for Porsche to drop margins to a flexible 10-15 percent range, Meschke said that such a concept would only dilute the effect of its worker strategy and vision. While profits may, in fact, drop initially until EVs can reach price parity with ICE cars, all workers need to be made aware that the goal is always 15 percent. He elaborated:

“It’s a strategic target. We need to structure the company so that it is in position to sustainably achieve that. There can always be years when it might drop to below 15 percent due to exchange rates or an economic crisis, but every worker has to know we are not letting up.

We already work with ranges for our capex and r&d ratios, but it’s better for Porsche to work with a fixed margin target. We attach incentives for the average worker to it, and there’s even a pension component. It’s really an internal steering instrument. That’s why everyone in the company from the manager to the assembly line worker knows the goal is 15 percent. If we work with a range, that effect is diluted.”

In order to maintain the status quo, Meschke says that Porsche is looking at 3-6 percent in annual savings over various areas. He continued:

Porsche

Porsche Cayenne S E-Hybrid

“Moreover, we review one of our core cross-departmental processes every year for another 10 percent savings there. There can always be a time when we need to pull on all levers, but identifying and extracting efficiencies is our everyday business. That way we don’t have to resort to major savings programs at the slightest headwind.”

The interview wrapped up with talk of diesels. And, of course, Porsche will still be utilizing diesel engines for the time being. Meschke believes that the market and consumer demand will inevitably determine the fate of certain powertrains. For the next ten years, Porsche plans to build diesels, optimized combustion engines, plug-in hybrids, and pure-electric sports cars “in parallel”. However, this doesn’t mean that the automaker won’t be pushing forward significantly with electric vehicles. Meschke concluded:

The first all-electric Porsche is set to hit the road in 2019. And you can be assured that this is only the beginning. We will set standards also in terms of e-mobility.”

Source: Automotive News Europe

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22 responses to "Porsche CFO Talks Huge EV Investments, Profitability Drop, More"

  1. Chris O says:

    Porsche’s gross margins at 30% aren’t that much higher than the ~25% where Tesla’s tend to be (not last quarter though…)so both companies should have plenty of scope for healthy net margins once cost get under control.

    1. L'amata says:

      Porsche ICE To EV “Retail Prices” shouldn’t be much different ,Since their ICE cars are so Over rated And So Grossly Over priced to begin with. Being accustomed to Making Absurd amounts of Money per Unit for such a long time. Now that reality sets in, Porsche Just can’t face fact that they need to somewhat Lower their Profit expectations.

      1. Chris O says:

        Since Porsche’s gross margins aren’t actually all that much larger than Tesla’s the prices they charge can’t be that much more absurd than what Tesla charges.

        1. L'amata says:

          In my Humble opinion ALL high end Cars are absurdly over priced Especially some sports cars, including Model “X” .They’re “LOOK AT ME” & my money Cars I would make those Un- needed Falcon wing doors an option 1st 0ff, and bring that price down ..The model 3 won’t be cheap either once you put on a few Necessary Options Plus a $1000.00 for a color, Model 3 a “Car For The Masses” ?? I doubt that!

      2. Jim J Fox says:

        Since when did mere price matter to a Porsche buyer?

    2. Ambulator says:

      Tesla’s gross margin and Porsche’s are not calculated the same way. I’m not saying one is right and one is wrong, but they aren’t directly comparable.

    3. Serial anti tesla troll thomas says:

      Tesla calculates the gross margin without R&D costs. All other car manufacturers does.

    4. zzzzzzzzzz says:

      “Porsche’s gross margins at 30% aren’t that much higher than the ~25% where Tesla”

      You would better check what is GROSS margin and how it is calculated in each case. They mean different things and are as much comparable as apples and oranges.

      Then you will figure out why TSLA NET margin is -20.75% (negative). Before investment cash flow.

    5. Terawatt says:

      It’s sad, isn’t it, that it is net margins that actually matter, not gross margins!

      Gross margin is a theoretically interesting figure that speaks to how profitable the car could become provided you could make infinitely many of it without needing any more production assets, just more of the “per-unit” inputs. As such, it really says bugger all about real profitability.

      I’m sure many will attack me for pointing out this basic truth. Some will even claim that Tesla is really making money, and have been for a long time, because it’s costs are “investments”. But that’s what balance sheets are for. Tesla’s total equity is now 4.7 billion. Its total liabilities? 23.4 billion. However you spin that, it is pretty clear that the company has so far created liabilities 4 times as fast as it has created assets.

      https://finance.google.com/finance?q=NASDAQ%3ATSLA&fstype=ii&ei=JgwKWrDqAdKQswH_3p6QBg

      I hope they figure out how to turn a profit. But to say that since 25% gross is near 30% gross Tesla should also be close to Porsche’s net margin is to take simplification too far. As Einstein said, everything should be made as simple as possible – but not simpler.

      1. Cecil T says:

        First off, Tesla isn’t a car company, it’s an energy company. Second, Tesla is a growing company and Porsche is an established / stagnant one.

        Tesla sells products and creates infrastructure which is capable of producing (whether or not they do it now) recurring revenue. Their products span multiple sectors. Porsche’s do not.

        Ok in fairness Porsche does a very small amount of engineering for other non-automotive companies as well, but it’s a drop in a bucket for them.

        The two are not remotely comparable in any sense at a company / stock level. You just look silly making the attempt.

  2. J P DeCaen says:

    I hope the production Mission E looks more like the concept than the test mule. Looks a little rough.

    1. Me says:

      Test mule has a camouflage. The final car will very likely look like the concept.

    2. Chris O says:

      I’m sure the twin exhausts are a detail that won’t make it into the final design.

      1. L'amata says:

        Yes! Twin Exhaust on an EV,((& don’t pass it 0ff as Camo)) Just like all the other Bull Truths Porsche has been feeding Us…I don’t believe a single word these guys say and I would never again buy one of their cars.

        1. Sleeper says:

          At least they test their cars before selling them.

          1. Bill Howland says:

            Hehehe, whom could you be talking about? 🙂

      2. ffbj says:

        Yeah. They will probably ditch those.
        (Good One!)

      3. Jason says:

        That’s where they will put the VPS sub woofer and speakers. Just because it is an EV doesn’t mean it can’t sound like a V12, and all cars will require VPS by law, so might as well make it interesting.

  3. pjwood1 says:

    Maybe the Porsche Club of America can organize a “Cars & Coffee” at the Atlanta, GA, 350KW supercharger, in 2019.

    Everyone can trailer their Mission E’s.

  4. Terawatt says:

    3 billion euros is a lot of money. But how does it compare to other lots-of-monies that carmakers regularly incur..?

    IDK how much Porsche usually spends developing a new engine, but I know Daimler spent over 3 billion euros to develop its latest diesel engine (a boring 1.6l unit). So I am not immediately convinced this is such a “huge burden” as Porsche would like me to think.

    Also, the fact that they claim they can do it without reducing margins kinda destroys the point that it is a “huge burden”. Almost by definition, in order for it to qualify as a burden one would think it would have to reduce profits.

    1. Jason says:

      And who believes if the vehicle costs X to build they won’t sell it for X+margin? EV is the wave of the future. EV gives performance kick like nothing else, and as a by product of the design. Tesla already shown them you can ask for premium price for that performance, so have no doubt they will have ICE with 0-60 in X seconds and just so slightly more expensive EV that can do it just so slightly faster!

  5. Jim J Fox says:

    ‘Daimler spent over 3 billion euros to develop its latest diesel engine (a boring 1.6l unit)’

    This sounds misleading- and IS! It was NOT to develop one new engine at all.

    http://europe.autonews.com/article/20160527/ANE/160529896/daimler-invests-$3.35-billion-in-clean-diesel-technology

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