Porsche believes it can make more profit by selling electric cars., Electric Vehicle News Bitesize
Porsche believes it can make more profit by selling electric cars., Electric Vehicle News Bitesize

Porsche believes it can make more profit by selling electric cars. Subscribe to Electric Vehicle News Bitesize Podcast for FREE!

The German sports car maker, which plans to go public this year, expects more pricing power for its electric vehicles.

Auto industry CEOs have warned for years that the cost of switching to electric vehicles will affect their profit margins. But ahead of its landmark potential listing, Porsche told investors it could become more profitable by focusing on battery power.

Volkswagen’s sports car maker sees more potential for higher prices for its electric vehicles than its combustion engine counterparts, the Volkswagen-owned sports car maker said during Porsche’s Capital Markets Day earlier this week. He believes that within two years, profit margins for Electric Vehicle makers will catch up to those of combustion engine vehicles, and then increase as customers are willing to pay more for new technology.

The sports car maker, which plans to go public in the fourth quarter, aims to increase its long-term return on sales to more than 20 percent from 16 percent a year ago. Management expects that by the end of the decade, 8 in 10 Porsches sold will be electric, and by 2031, electric cars will account for half of the luxury car market.

“Our target is to selectively expand higher-margin segments and to leverage electric-vehicle pricing opportunities,” Porsche CEO Oliver Blume said.

Porsche’s IPO comes amid unusual industry conditions. Automakers generated high returns as supply chain shocks limited production, leaving them with no choice but to focus on the most profitable models and raise prices. It’s unclear what will happen once shipments stabilize, but the premium profitability of recent quarters will make comparisons difficult later on.

Porsche is well ahead of rivals like Ferrari and Aston Martin when it comes to its electrified lineup. But while its Taycan Electric Vehicle outperformed the iconic 911 last year, the automaker still produces far less EVs than Tesla. A more meaningful increase in Electric Vehicle capacity will require overhauling factories, retraining workers and ensuring that battery raw materials are secured.

Aside from the uncertainty over how profitability will be once the supply chain crisis subsides, production normalizes and automakers seriously start the Electric Vehicle transition, it’s unclear what will happen to pricing power once EVs stop being the hottest new thing.

Established automakers aren’t very transparent about the profitability of their early battery-powered models. One exception is Volvo Cars, which this week Bernstein analysts praised for its level of disclosure. The company’s electric vehicles, which are 12% more expensive than internal combustion engines, posted gross margins of 15% in the second quarter, compared with just under 21% for its internal combustion engines. On the positive side, Volvo’s Electric Vehicle margins improved by a percentage point from the first quarter.

The all-combustion 911 remains Porsche’s most profitable model. The automaker is gearing up to launch an electric version of its popular Macan SUV. The plug-in model will likely be well above the roughly $60,000 required for the base gasoline version. On top of the Cayenne, Porsche is planning a new electric luxury SUV starting at around 83,000 euros.

Of course, the Macan has been delayed until 2024 due to software issues in the Volkswagen Cariad division. Porsche is now trying to forge its own path in software, but the issues still raise concerns about future Electric Vehicle launches. There is no release date for the luxury SUV, and executives have said nothing about the model other than to say it will be built in Leipzig, Germany.

CEO Bloom believes Porsche is unique because the brand has luxury appeal and benefits from economies of scale — after all, it sold 27 times as many cars as Ferrari last year.

Still, maintaining this performance while increasing profit margins during the power transition will be quite a challenge.

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Porsche believes it can make more profit by selling electric cars., Electric Vehicle News Bitesize
Subscribe to Electric Vehicle News Bitesize Podcast for FREE!