Publication date: Feb. 13, 2025

Porsche will sound very familiar to many, and possibly as a child you dreamed of driving a real Porsche. The German car brand is known worldwide for its sports cars with the type 911 as its iconic figurehead. However, Porsche shares have been in decline for some time due to various setbacks and problems. Today, we cover the current situation and the opportunities currently facing investors and look at its highly successful competitor Ferrari. What can Porsche learn from its Italian opponent to go full throttle forward again?

Brief introduction Porsche AG:

Porsche AG was founded in 1931 by Ferdinand Porsche, also developer of the famous VW Beetle. Porsche has always had close ties to Volkswagen and for several years has had a complex ownership and control relationship with Volkswagen. Briefly, Volkswagen AG is majority owner of Porsche AG. Volkswagen AG in turn is owned by Porsche SE which is owned by the Porsche family. We focus on Porsche AG, manufacturer of the famous sports cars.

Porsche sells over 300,000 cars a year and has about 40,000 employees. Around 40% of sales take place in Europe but the US (25%) and China (15%) are also important markets for Porsche.

What is the situation at Porsche?

Porsche AG shares have been tradable on the stock exchange since October 2022. After being issued at €82.50, the share price set a high at €122 in May 2023. From that point on, the price dropped to the provisional lowest price of € 55. From the peak, that's 55% lower in a year and a half. This trend directly reflects the difficult situation within the company.

The German car group is struggling with a number of problems:

- Declining sales and profitability: Porsche saw a decline in both sales and profitability. In the first nine months of 2024, sales fell 5.2% from the previous year, while operating profit fell 26.7%. Operating margin fell from 18.3% to 14.1%. Models with electric motors sold poorly.

- Weak performance in China: China, an important market for Porsche, showed a sharp decline in sales. In the first half of 2024, deliveries fell 28% compared to the same period in 2023. This decline is attributed to a cooling Chinese economy.

- Strategic realignment and investments: In an effort to restore profitability, Porsche invested €800 million in the development of new models with combustion engines and plug-in hybrids. Although this strategy was designed to respond to market demand, it led to a reduction in profit forecasts for 2025, with an expected operating margin of 10-12%, below the previous target of 17-19%.

- Management changes and internal challenges: There were significant changes in top management, including the announced departure of CFO Lutz Meschke and sales director Detlev von Platen. These shifts point to internal tensions and strategic rethinking within the company.

What will Porsche do to turn the tide?

Cut spending and focus more on the internal combustion engine. Porsche plans to save billions over the next few years after a slower-than-expected shift to electric cars and continued weakness in the Chinese market. One of the cost-cutting measures is to shrink its dealer network in China, the German group announced.

All indications are that Porsche wants to slow down a bit when it comes to electrification. Signs are the sales figures of Porsche's first EV, the Taycan. It is now selling worse than the old and less popular types such as the 718. So Porsche is going to invest again in the preservation and development of combustion engines, with the aim, of course, of improving the brand's future.

So is it only down to Porsche's Electric Vehicles?

In part, it will be due to the introduction of the EV because a Porsche with an electric motor may take some getting used to for many people. In addition, the Taycan has had a recall, but that doesn't help either. Focusing on the classic internal combustion engine could work out quite well for Porsche in the long run.

We think Porsche suffers much more from its brand positioning. While Porsche is a luxury brand, it is not as exclusive as it used to be. Production has skyrocketed in recent years and the margin is getting lower and lower. No, then the Germans can take an example from Ferrari. This brand stands for exclusivity among sports cars. People take pictures of a Ferrari when they see one parked. This no longer happens with a Porsche. That is exactly the difference.

What does Ferrari do so well that Porsche can take an example from?

During the period when Porsche fell from €122 to €55, the Ferrari share price managed to rise from €200 to €450!

Ferrari's share price has experienced a remarkable rise in recent years, which is due to several strategic and operational factors:

- Exclusive brand positioning and limited production: Ferrari maintains a strategy of scarcity by deliberately limiting the number of cars produced. It sold 13,663 vehicles in 2023 and 13,934 units in 2024. This limited availability increases exclusivity and demand for their cars.

- Strong financial performance: The company has achieved impressive financial results. In 2023, the average sales price per vehicle was €373,901, which increased to €411,895 in 2024. Net profit per vehicle increased from €85,560 in 2023 to €97,387 in 2024. This profitability exceeds that of many other automakers.

- Innovation and expansion of the product portfolio: Ferrari has expanded its offerings with new models, such as the Purosangue SUV and the Roma Spider, and is investing in electrification. By 2024, six of their models were hybrid, accounting for 51% of total deliveries. The company plans to introduce its first all-electric model in 2025.

- Sustained demand and pricing power: The continued strong demand for Ferraris, combined with their ability to raise prices without hurting demand, has contributed to the rising share price.

These elements, along with a strong brand identity and strategic vision, have significantly increased Ferrari's share price over the past decade.

As a result, Ferrari simply sells well in the hybrid sector. The move to electric driving is a big step for Ferrari, which is known for its powerful gasoline cars with characteristic engine noise. The brand has been offering hybrid models since 2019, though. By 2024, half of all Ferraris sold were hybrids.

The company expects to increase profits by at least 5 percent this year. Last year, profits were already up 12 percent, due in part to high demand for personalized cars. About a fifth of sales come from customers who have their Ferrari customized with special paint or carbon parts.

The announcement of the EV plans fell well with investors: Ferrari shares rose more than 7 percent on Tuesday.

Conclusion

Porsche has traditionally produced high-quality and well-loved sports cars. Where previously a Porsche stood for exclusivity, the brand is losing this label somewhat. As a result, the Porsche is becoming a more mainstream sports car. This costs margin and also gives more competition. Focusing more on the combustion engine will not, in our expectation, provide a huge increase in sales in this segment. Although the stock is at a historically low level, we do not expect the current level to be at the bottom yet. From the current €55, a recovery to around €75 is possible but we expect a bottom in the €30 to €25 zone. Speculative investors may consider capitalizing on an interim recovery. We will keep an eye on the stock and determine the strategy only around the set bottom zone again.

Ferrari has had the wind in its sails for years and is performing fantastically as a company. The expansion with electric motors has been positively received but is a small risk for the share price development, as far as we are concerned. The share price has already risen tremendously to the current € 460 but has undergone a nice correction in the meantime and is showing a lot of strength. According to our algorithmic system, the price could continue to rise to €570. This scenario expires with a closing price below € 365. Based on this, you can consider taking a position.

Disclaimer: Investing involves risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. They are therefore for educational purposes only.