Porsche sees lower returns in year of major model launches

By Christoph Steitz and Rachel More

FRANKFURT/BERLIN (Reuters) -Porsche expects its profit margins to dip this year as the German luxury carmaker funds the launch of four new models to help it tackle tougher competition.

The company said it would avoid a bigger hit to profitability by steering clear of a brutal price war in China, where it sells about a quarter of its cars.

Last year, Porsche’s deliveries in China fell 15% year-on-year, reflecting the “value over volume” strategy CEO Oliver Blume said was possible because of a geographical spread that helped it increase total deliveries by 3.3%.

Blume said the Chinese market would emerge from the current economic crisis towards the end of the year, when Porsche would have a strong lineup to take advantage of the recovery.

Porsche, majority-owned by Europe’s top carmaker Volkswagen, is targeting an operating margin – or return on sales – of 15-17% in 2024, below analysts’ average forecast of 17.4% in an LSEG poll and down from 18% in 2023.

Shares in the group, which was spun off in a mega-IPO in 2022, were up 3.2% at 1308 GMT, with traders pointing to fourth-quarter results that were slightly ahead of estimates.

However, Citi analysts said the 2024 outlook, which also forecast sales of 40 billion to 42 billion euros ($43.7-$45.9 billion), was disappointing.

“Porsche will focus on brand and pricing in future, but to do this, the product range needed to be renewed. This is now happening – but the full impact on pricing and profitability will take time, and now come from a lower base,” they said.

The muted outlook chimes with parent Volkswagen, which earlier this month said sales growth would slow in 2024 due to headwinds including from weaker economic growth, stiffer competition and higher costs.

Porsche maintained its medium-term margin outlook of 17%-19%. In the long-term, it continues to expect more than 20%.

The company’s shares are down nearly 1% year-to-date, underperforming a 10% increase in the STOXX Europe 600 Automobiles & Parts index, with analysts pointing to fierce competition in China and expected ramp-up costs for the new model launches.

With new launches in its Panamera, Macan, Taycan and 911 model lines planned for 2024, Porsche said it was gearing up for the biggest year of product launches in its history.

Shares in rival Ferrari are up about a quarter over the same period.

Porsche posted sales of 40.5 billion euros for 2023, largely in line with an LSEG estimate, while the return on sales beat expectations for an operating margin of 17.7%.

($1 = 0.9161 euros)

(Reporting by Christoph Steitz and Rachel More; Editing by Bartosz Dabrowski, Kirsten Donovan and Mark Potter)