Plenty of investor patience is required before new electric models due out this year contribute to higher profitability.
Porsche’s motorsport reputation rests partly on its record in the Le Mans 24 Hours race. Shareholders in the German sports car brand need similar perseverance. Porsche shares have dipped below their 2022 IPO price in recent months. Full-year results this week sparked a share price rally of 12 per cent, its best day so far.
Not that the news was so great. Porsche expects lower profit margins this year. The market focused instead on its bevy of updates this year, such as the new Taycan, Panamera, Macan and 911 models. Hints that its indirect owner Volkswagen may increase the free float number of shares also boosted sentiment. Offsetting this optimism will be the cost of Porsche’s outsized bet on electric vehicles.
Porsche already trails its nearest rival Ferrari. The US-listed Italian supercar maker’s share price has doubled since the start of 2023. Investors rate its growth prospects highly, valuing Ferrari at almost 50 times forward earnings. Porsche shares are 6 per cent lower over the same period. Its valuation has slipped to 15 times forward earnings.
This large discount should begin to narrow as Porsche’s sales of new models come through. Porsche anticipates its operating margins (not including its car finance arm) to climb 200 basis points towards 20 per cent in the medium term. But in the short term profit margins may well stagnate.
One hope is premiumisation as it sells more expensive, more profitable, cars than it already does. That will take time. The bulk of its cars sell under €125,000. Ferrari sticker prices start at nearly double that, though it makes fewer cars.
The German maker also sees electric vehicles contributing to higher margins eventually as production costs fall. But as it stands these are more expensive to make and pricier for customers by up to 20 per cent.
Curiously, Porsche forecasts sluggish EV demand this year, anticipating penetration as low as 2023’s level of 13 per cent. That looks overly conservative given the company has ambitions to increase EV sales to 50 per cent by 2025 and has new electric models due out this year, say analysts at Bernstein.
That suggests Porsche’s EV ambitions require plenty of investor patience before these models contribute to higher profitability. Those who crave a speedier stock may not wish to sit idling with Porsche.
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