Tariffs Turn Porsche's Headwinds Into a ‘Violent Storm'

New York Times

5 days ago

This year was already shaping up to be a tough one for Porsche. Chinese customers were losing interest in the luxury sports car, its bet on electric vehicles was failing with drivers long enamored by the rumble of its combustion engines and its stock price hovered near record lows.
Then President Trump imposed a 25 percent tariff on all cars imported to the United States starting in April. Last week, he doubled down on that, threatening a 50 percent tariff for all products from the European Union, sending Porsche's shares tumbling further and E.U. leaders and auto executives scrambling to make a deal.
All of Europe's leading carmakers have been hit by the tariff turbulence, at a time when they are already facing increasing competition from Chinese automakers. But unlike BMW, Mercedes-Benz and Volkswagen, Porsche manufactures its vehicles exclusively in Germany, leaving it more vulnerable to the combined threat of advancements from China's rivals and tariff increases in the United States.
'It is literally a perfect storm,' said Harald Hendrikse, a managing director covering the European auto sector at Citi Research. 'You have a triple threat, which is China, an E.V. strategy that was wrong — despite being lauded at the time — and then Trump's tariffs, which nobody had guessed would be as severe as they are.'
That has led Porsche to scale back its forecast for the year, by about 2 billion euros, or $2.2 billion. Its profit margin range is also expected to drop between 6.5 percent and 8.5 percent, from 10 percent to 12 percent.
'Our market in China has literally collapsed,' Porsche's chief executive, Oliver Blume, told shareholders at the company's annual conference on May 21. 'U.S. import tariffs are weighing on our business.'
'We already faced massive headwinds last year — now we are experiencing a violent storm,' Mr. Blume said.
Porsche's sales in China have been declining steadily, down to some 56,800 vehicles last year, from its peak of 95,600 in 2021, as Chinese customers turn to local brands with technology that has surpassed offerings from European auto manufacturers.
Weaker demand in China and declining sales of its electric models have pushed Porsche's shares down to nearly half of their value from their debut on the Frankfurt Stock Exchange in 2022.
Even before the U.S. tariffs were put in place, Mr. Blume had announced plans to lower overhead costs, moving to consolidate production at two factories, instead of four. The company has also begun eliminating 3,900 jobs over the coming years, largely through attrition and allowing short-term contracts to expire.
Demand for electric cars in Europe and the United States slumped after countries across the globe, including Germany, slashed E.V. subsidies, prompting Porsche to scale back its goal of having 80 percent electric vehicles in its lineup by 2030.
Starting this year, the company is bringing back models with combustion engines and expanding its offering of plug-in hybrid vehicles. Porsche is also abandoning its planned investments in battery technology.
Mr. Blume, along with his counterparts at BMW and Mercedes, has been involved in the talks with Brussels and Washington as part of Europe's overall efforts to reach a trade agreement. They have repeatedly stated that their goal is to see duties dropped on all vehicles crossing the Atlantic.
The Confederation of European Business, a lobbying group in Brussels that represents firms across the bloc, said that E.U. leaders had reached out for data about companies' most recent investments in the United States, as part of preparations for trade meetings with officials in Washington. German companies invest three times as much in the United States as Americans do in Germany. But many have recently grown wary of doing so, citing the chaos caused by Mr. Trump's trade policies.
During Mr. Trump's first term in office, the German car companies were able to fend off his threat of tariffs by stressing the importance of their contributions to the U.S. economy. BMW, Mercedes and Volkswagen employ around 48,000 people in their U.S. factories, and German automotive suppliers provide an additional 90,000 jobs.
Despite Mr. Trump's desire to shift production to the United States, Porsche has indicated that it has no intention of moving, citing its relatively low number of vehicles produced annually.
But Porsche is a unit of the Volkswagen Group, which includes nine other brands such as Lamborghini, Audi and Volkswagen, which has a factory in Chattanooga, Tenn. Volkswagen's Scout brand is also investing $2 billion to build a factory in South Carolina.
Analysts have reported that Audi is exploring the idea of shifting production of some models to the United States as a result of the tariffs, although the company has declined to confirm the decision. That move could be part of any prospective deal that German automakers are hoping to reach with the Trump administration.
Porsche shares many parts and platforms with Audi. If Audi were to open a factory in the United States, that could pave the way for Porsche to follow, should the company eventually decide that production in North America made sense.
For now, Porsche continues to see its future firmly linked to its reputation of being 'Made in Germany.' That label has taken a hit from the growing competition from Asian companies in recent years, but Germany and its leading products, including Porsche vehicles, still rank consistently among the world's best-known brands.
'There are a lot of examples of German brands that are household names,' said Cristobal Pohle Vazquez, an associate director at Brand Finance, a consulting company that studies name recognition worldwide. 'I think Porsche is a prime example.'
That reputation, built up since the company's founding in 1931, and its loyal base of customers help give Porsche the pricing power to help ride out the storm, Mr. Hendrikse of Citi Research said. Like its parent company, Porsche has proved over time that it is able to make the changes necessary to take on new technologies and respond to crises.
'These companies have been around for 100 years for a reason — because they do adapt and they will adapt,' he said.