Porsche once again surpasses predictions, incurring billion-dollar expenses that burden parent company Volkswagen as well.
Volkswagen Group, Porsche, and Porsche SE are all bracing for a challenging year ahead, with each company announcing significant restructuring and cost-cutting measures.
Volkswagen is shouldering special costs of 5.1 billion euros, including a 3 billion euro impairment on the carrying value of Porsche AG and 2.1 billion euros in follow-up costs for an adjusted vehicle project. The non-cash impairment on the Porsche shares will not be considered in VW's own dividend payout. As a result, Volkswagen now expects a balanced cash flow in the automotive sector this year, rather than the previous expectation of a cash inflow of 1 to 3 billion euros.
Porsche, on the other hand, is comprehensively restructuring to adapt to new market realities and customer needs. The company's January to June consolidated net profit dropped by 71% to 718 million euros, and it anticipates an operating margin for the full year of only slightly positive or up to 2 percent. To achieve this, Porsche is planning to cut costs and jobs in the Stuttgart region, with another savings program currently under negotiation.
The new large electric SUV, initially intended for the US market, will only be available as a combustion engine and plug-in hybrid. Porsche aims to meet the entire range of customer wishes with a mix of different powertrains, and it also plans to develop new combustion engine models and successor models with combustion engines for existing vehicles like the Panamera and Cayenne.
The market introduction of certain fully electric vehicles will be delayed due to the delayed ramp-up of e-mobility. Sales have been lackluster, particularly in China and the US, and US import tariffs have weighed on business, driving profits down. Consequently, Porsche shareholders will receive a significantly lower dividend than in previous years.
Despite these challenges, both Porsche and Volkswagen are committed to maintaining internal combustion engines in their lineup and introducing new combustion engines and plug-in hybrids. The special costs of 5.1 billion euros in 2023 within the VW Group, excluding Porsche AG, are borne by multiple group entities such as Volkswagen, Audi, Škoda, and other volume and premium segment brands, coordinated under group-wide innovation and cost management efforts.
Volkswagen now expects an operating profit margin of only 2 to 3 percent, down from the previously targeted 4 to 5 percent. The company cited the delayed ramp-up of electromobility and poor performance in China as the main reasons for the more significant restructuring.
Shares of both Volkswagen and Porsche SE fell in response to these announcements, with Volkswagen's preferred shares dropping by 3.6 percent and Porsche SE shares falling by two percent. Porsche shares also fell by three percent on the Tradegate trading platform compared to the Xetra close before the weekend.
In conclusion, Volkswagen, Porsche, and Porsche SE are all facing significant financial challenges in 2023, with billions of euros in special costs, delayed electric vehicle introductions, and reduced profit margins. However, all three companies remain committed to adapting to the changing market conditions and meeting customer needs with a mix of different powertrains.
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