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Name | Symbol | Market | Type |
---|---|---|---|
Porsche Automobile Holding SE (PK) | USOTC:POAHY | OTCMarkets | Depository Receipt |
Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.0449 | 1.07% | 4.2599 | 4.20 | 4.34 | 4.29 | 4.24 | 4.27 | 328,904 | 21:15:54 |
By William Boston
STUTTGART, Germany-- Porsche AG has found a new weapon, beside its mojo as an iconic sports-car brand, to help it race ahead of rivals in global markets: the swooning euro.
When Lutz Meschke, Porsche's chief finance officer, issued guidance for the company's earnings earlier this year, he was cautious about whether the Stuttgart-based car maker would be able to deliver. With slowing growth in China, economic turmoil in emerging markets and a consumer shift toward cheaper versions of expensive cars, he said Porsche would have to work "damn hard" to achieve a pretax profit margin of 15%.
Luckily for Porsche, foreign exchange markets did some of the heavy lifting for the company. "We will achieve our strategic target," Mr. Meschke told The Wall Street Journal in an interview.
Because Porsche only manufactures in Europe, the weak euro makes its cars cheaper in many foreign markets. Mr. Meschke has used flexible hedging contracts to tweak earnings this year and the strategy has paid off. Porsche hedges against about 20 currencies.
But the portion of revenue that isn't hedged is fully exposed to the euro and is translating into higher profits from the U.S. and China. "It's a short-term effect," said Mr. Meschke. "But we're talking about significant three-digit million-euro sums that are flowing in through foreign exchange--through the weak euro in relation to the dollar and Chinese Renminbi."
Porsche's foreign exchange strategy has also helped the company weather Russia's economic implosion. At the beginning of 2014, the ruble was trading at about 45 to the euro and weakened to 72 by the end of the year. The impact on foreign-car makers there was that as the ruble loses value, car makers must raise prices to make up for the foreign-exchange loss. In 2014, Porsche hedged at an exchange rate of "well below 60", which allowed the company to keep price increases to about 10%, Mr. Meschke said, much less than the inflation caused by the collapse of the ruble.
Though very profitable, however, Porsche's margins have come under pressure, falling from 19% just a few years ago. In 2014, the company's operating margin was 15.8%, down from 18% the year before.
The main reason for the decline is what Mr. Meschke calls "downsizing," namely the reduction of profit per car after Porsche introduced sport-utility vehicles into its lineup, and customer preference in some markets, especially China, for smaller engines and fewer features to lower the price of a car.
The introduction of the Cayenne SUV several years ago and the Macan last year has transformed Porsche. The Cayenne and the Macan accounted for 58% of the company's total sales of 189,949 new cars last year. So far this year, Porsche's new car sales are up 30% to 113,984 vehicles worldwide, driven by strong sales of the 911 sports car and the company's Cayenne and Macan sport-utility vehicles.
The Macan, a compact SUV with much lower margins than Porsche's top flight 911, Boxter, and Panamera sports cars, was launched in global car markets beginning in early summer last year. This year is the first full year of Macan sales and as a result the share of SUVs will grow significantly and water down earnings. "We have a clear downsizing because of the Macan," Mr. Meschke said.
He dismissed analyst suggestions that Porsche has become an SUV company that also makes sports cars. "We have to go down this path because otherwise, we wouldn't even be present in many growth markets and would not be able to develop our brand," he said. "But it is really important to keep a clear focus on the sports car."
Some customers are also balking at the high price tag of a luxury vehicle. As a result, Porsche is offering tuned-down versions of its cars. The Macan was offered in China with a four-cylinder engine, for example, just to make the car cheaper for price-sensitive Chinese buyers.
"There is a clear trend in China that affects all premium manufacturers, " said Meschke. "They want the brand, but they want to pay as little as possible. And as a result, average earnings (per car) are falling in China."
Porsche is worried about China and is looking for alternative markets in Asia. Recently, the company pulled forward plans to expand dealerships in South Korea and Taiwan and is studying further expansion in Southeast Asia, Mr. Meschke said. "If you just rely on China for growth it's going to go wrong."
Mr. Meschke is also responsible for the company's information technology and realizes Porsche has to develop new digital businesses. Mostly these will focus on services close to the behavior of car drivers, such as a plan to develop first-class parking for Porsche drivers with a digital payment process. Porsche is also developing premium customer services together with Bentley, another of parent Volkswagen group's brands.
Recently, he has begun accelerating development of digital businesses and said he expects the company to make acquisitions of technology startups in the future to acquire digital expertise or technology.
At the Frankfurt Motor Show in September, Porsche will unveil an exclusive arrangement with Apple Inc. to launch an updated version of its 911 sports car, with new engines and a new communication system. The new 911 will come with Apple's CarPlay preinstalled.
CarPlay is an in-car information and entertainment system that allows drivers to use their favorite iPhone apps such as iTunes and iPhone contacts on their car's dashboard computer. "We've realized that 80% of Porsche customers are Apple iPhone users," said Mr. Meschke, adding that Porsche currently has no plans to install Google's rival system Android Auto.
Write to William Boston at william.boston@wsj.com
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