Porsche Cuts Profit Outlook Over US Tariffs, EV Slowdown

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Porsche Cuts Profit Outlook Over US Tariffs, EV Slowdown.

companies :: 17hrs ago :: source - bloomberg

By Monica Raymunt

REUTERS/Priyanshu Singh/File Photo

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Porsche AG expects its profit margin to slip into single digits this year, with the luxury-car maker warning about US tariffs and higher costs from weak electric-vehicle adoption.

The German manufacturer now projects return on sales to fall to as low as 6.5%, down from previous guidance of at least 10%. Porsche is one of the carmakers most exposed to President Donald Trump’s trade moves because it lacks a factory in the US.

The Volkswagen AG-controlled brand is grappling with waning demand for EVs, slumping sales in China and now additional costs from Trump’s auto tariffs. The US recently surpassed China as Porsche’s top market thanks to robust demand for its Macan and Cayenne sport utility vehicles, but it imports all its cars from Europe.

Porsche shares fell as much as 7.6% in Frankfurt early Tuesday, and have lost half their value in the past year.

Porsche invested large sums in EVs and batteries, but the drop in demand has forced a rethink. The carmaker will no longer independently expand production of high-performance batteries with its subsidiary Cellforce, it said Monday, increasing one-off costs for this year to €1.3 billion ($1.5 billion).

“We have to face the reality that we see from the markets, namely a complete slowdown when it comes to electric mobility,” Chief Financial Officer Jochen Breckner said on a call with reporters.

US tariffs hit sales in April and will also affect performance in May, Porsche said, but the company was unable to estimate any effects beyond those months. Assuming no price rises, the annual cost of tariffs could hit €2 billion, according to calculations by Citi analyst Harald Hendrikse.

The company has no plans to start making cars in the US because that would be more expensive than shouldering the costs of the current tariffs, Breckner said. Porsche could raise prices depending on the final tariffs, he added.

Automakers across Europe are trying to navigate the rising trade tensions. Ferrari NV is raising prices for some of its models in the US by as much as 10%, while Mercedes-Benz Group AG is considering withdrawing sales of its entry-level vehicles from the market. Renault SA said last week it will likely delay the US introduction of its Alpine sports-car brand.

Delays and caveats to Trump’s trade policy have made it difficult for carmakers and suppliers to anticipate the full impact on their financial results this year. The White House flagged more changes late Monday, saying imported cars would not be hit twice by separate tariffs on aluminum and steel. It also said companies could secure a partial reimbursement for duties on imported parts based on the value of their US car production.

Beyond the chaos of Trump’s trade war, dwindling demand in China has forced Porsche to reset its strategy. The brand has swapped out key board members and agreed to cut jobs in Germany to lower costs.

Porsche’s vehicle sales in China plummeted 42% in the three months through March, to its worst quarterly result in the Asian nation since 2013. Intense competition from domestic carmakers led by BYD Co. is cutting deeper into the market share of Western manufacturers.

Porsche cited “challenging market conditions” in China on Monday. It expects deliveries in the country to slump 30% this year to roughly 40,000 units, Breckner said.

The impact of US trade policy, China’s economic malaise and the EV slowdown contributed to especially weak first-quarter results. Operating profit fell 40% to €760 million from a year earlier, with the company posting its first-ever single-digit return on sales in a quarter of 8.6%.

Porsche also lowered its revenue outlook to as low as €37 billion, from between €39 billion and €40 billion previously.

Although the key challenges aren’t of Porsche’s own making, “it has work to do to exhibit greater control of its problems,” Citi’s Hendrikse wrote in a note.

Facing lukewarm demand for its EVs, Porsche already decided to take an €800 million hit this year to expand its product portfolio with more combustion-engine and plug-in hybrid models. In March, the company lowered its medium-term return-on-sales target to between 15% to 17%, from as much as 19% previously.

--With assistance from Ryan Beene.

(Updates with comments from media call.)