Porsche said to plan $6.8B profit push for electric cars

November 23, 2018 17:05 CET

Porsche has an ambitious plan to improve operating profit by 6 billion euros ($6.8 billion) over eight years by streamlining operations as the automaker spends more to develop and build electric cars, according to people with knowledge of the matter.

Porsche aims to increase earnings before interest and taxes by about 750 million euros annually over a timeframe starting this year and running through 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 Group brand’s target of a 15 percent return on sales. Porsche declined to comment.

Keeping returns flowing at Porsche is key to VW Group’s plan to make the group a more agile company and face the industry’s unprecedented shift to self-driving and electric cars head on. Automakers readying electric lineups are pushing for savings elsewhere to offset lower profits from battery-powered cars when compared to vehicles with combustion engines.

The Taycan, Porsche’s first full-electric car, is an example of the quandary facing automakers. The four-door Taycan, which comes to market next year, will cost from 6,000 euros to 10,000 euros 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 euros through 2022 on electric mobility.

After 2025, Porsche anticipates that the efficiency push will improve profit by about 2 billion euros annually, the people said. VW’s most profitable brand generated 4.1 billion euros in operating profit and 23.5 billion euros in revenue last year. The operating margin of more than 17 percent compares to single-digit return on sales at most mass-market carmakers.

VW Group is on its way to become “the electric powerhouse within the auto world” and should have higher revenue and earnings momentum than Daimler AG and BMW AG, Bankhaus Metzler analyst Juergen 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 SUV. Porsche has said the first cars from the new platform are planned for late 2021.

Porsche expects half of deliveries will be full-electric or hybrid cars in 2025. Developing vehicles with combustion engines will not be economically viable from 2030 onward under the goals of the Paris Climate accord, it said.

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