Sunday, June 9, 2019

Porsche Needs To Make More Money Before Electric Cars Eat Profits

EVs cost more to build than conventional vehicles.

Automakers everywhere have acknowledged that electric cars are the future. Porsche is certainly no exception, evidenced by the all-electric Taycan, due next year. But according to Bloomberg, Porsche is already preparing a plan to increase profits over the next several years because it’s about to spend more in EV development. Specifically, Porsche is currently formulating an ambitious plan to boost operating profit by 6 billion euros ($6.8 billion) over the next eight years by streamlining operations, cost-cutting, and increase digital business offerings.

The German automaker’s plan is to increase earnings before interest and taxes by around 750 million euros ($850 million) annually beginning this year through 2025.

The ultimate goal is to maintain parent company Volkswagen Group’s 15 percent target return on sales. You see, Porsche is vital to VW Group’s overall profits because it is its most profitable brand. To maintain its edge, Porsche needs to invest more money in self-driving and electric car development. The Taycan, for example, will cost 6,000 euros to 10,000 euros more to build than, say, a Panamera. Porsche will absorb those added costs instead of passing them down to the customer.

Meanwhile, Porsche is investing more than 6 billion euros ($6.8 billion) through 2022 on electric cars alone. If all goes to plan, this investment is expected to improve profit by about 2 billion euros ($2.3 billion) annually after 2025.

To give you a better indicator just how profitable Porsche is for VW, last year it made 4.1 billion euros ($4.65 billion) in operating profit and 23.5 billion euros ($26.6 billion) in revenue. As electric powertrain technologies become more widespread, the likelihood is very high production costs will eventually come down.

But for now, in order to continue making lots of money, Porsche needs to spend it wisely. Following the launch of the Taycan, expect additional Porsche models to receive the full-on electrification treatment, such as the future production version of the Mission E Cross Turismo concept and a version of the Macan.

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