Porsche is planning to cut around 4,000 jobs as part of a major restructuring plan aimed at improving efficiency over the medium and long term. The luxury carmaker is taking this step to address declining profits, increasing costs, and growing competition in the global auto market.
Stock Falls After Profit Warning
On Wednesday, Porsche shares fell by 4.9% in Frankfurt following the company’s second profit warning in two months. The decline in sales, combined with higher operating expenses, has contributed to this negative outlook.
In 2024, Porsche reported a group sales revenue of €40.1 billion, showing a slight decrease of 1% compared to the previous year. Efforts to minimize losses included competitive pricing strategies and broader customization options for its vehicles.
Operating profit for the company fell from €7.3 billion in 2023 to €5.6 billion last year. Additionally, Porsche’s operating return on sales dropped from 18% to 14.1%, indicating reduced profit margins in a highly competitive market.
Investment in Hybrid and Combustion Models
In February, Porsche announced plans to invest €800 million in developing hybrid and internal combustion engine models. This decision is expected to impact profitability for the current year. To counterbalance financial strains, the company has confirmed it will cut 1,900 jobs by 2029. Furthermore, another 2,000 positions will be lost as temporary contracts come to an end.
Affected employees are being offered severance packages or early retirement options to ease the transition.
Challenges Facing the Auto Industry
According to Russ Mould, investment director at AJ Bell, the automotive industry faces ongoing challenges. “The shift to electric vehicles (EVs) is complicated by uneven regulations and varying consumer interest,” Mould explained. “Additionally, competition from China and weak consumer confidence are making things even harder.”
Porsche is also dealing with supply chain disruptions and delays in launching new models. Mould added, “With tariffs now part of the equation, achieving a 20% profit margin looks increasingly difficult.”
Although restructuring and leadership changes could improve Porsche’s performance in the long run, immediate progress is unlikely. Porsche, owned by Volkswagen, has set a long-term goal of achieving a return on sales above 20%. However, current predictions place margins between 15% and 17% due to challenging market conditions.
Pressure from Global Competition
Luxury automakers like Porsche, Audi, and Mercedes-Benz are all feeling the pressure of weakening demand in China. Higher living costs have made Chinese consumers more hesitant to invest in premium vehicles.
In Europe, Porsche faces stiff competition from Chinese EV manufacturers, including BYD, Geely, and SAIC. These companies are rapidly gaining market share by offering well-designed, affordable electric vehicles with modern features.
The decline in EV demand across Europe has also affected Porsche. High interest rates and inflation have reduced consumer spending power. Even Tesla is feeling the heat, having lost 40% of its market value this year due to increasing competition from Chinese manufacturers.
Additionally, Tesla’s reputation has been affected by CEO Elon Musk’s political involvement and vocal support for far-right figures in Europe, which has driven some customers away from the brand.