Porsche CFO outlines how company will thrive in EV era

Porsche has no intention of reducing its 15 percent operating margin profitability target despite the heavy investments needed in EVs. Finance chief Lutz Meschke said Porsche will overcome the "enormous burden" of electrifying its lineup and will also set the standard in e-mobility. He explained how in a recent interview with Automotive News Europe Correspondent Christiaan Hetzner.

Will electric vehicles be bad for Porsche's profitability?

Today Porsche packs 8,000 to 10,000 euros in added content into an electrified vehicle, but those costs cannot be passed on via the price. The customer won't accept it, just the opposite, in some parts of the world there's a certain hesitation [to acceptance]. But new technologies like this are an investment in the future. At the moment, we have to develop combustion powertrains in parallel, so we have a higher expenditure without the corresponding volume.

What will this cost you?

Our five-year investment plan foresees investments of more than 3 billion euros alone for EVs and plug-ins. That’s an enormous burden for a company of our size.

Does that mean the company will face some tough years?

To protect your margin, you have to look at substantial fixed cost cuts, but there's only so much potential since the biggest chunks are personnel and development. As sales shift toward EVs, a temporary drop in profitability in the midterm may be expected.

Porsche's profit margin is 15 percent now and that is also your target for the future. Should you lower it?

It's a strategic target. We need to structure the company so that it is in position to sustainably achieve that. There can always be years when it might drop to below 15 percent due to exchange rates or an economic crisis, but every worker has to know we are not letting up.

Would setting an EBIT range of, for example, 10 percent to 15 percent be more appropriate?

We already work with ranges for our capex and r&d ratios, but it's better for Porsche to work with a fixed margin target. We attach incentives for the average worker to it, and there's even a pension component. It's really an internal steering instrument. That's why everyone in the company from the manager to the assembly line worker knows the goal is 15 percent. If we work with a range, that effect is diluted.

Do you need a deep cost-cutting program to maintain your high margin?

Under our Porsche Improvement Process, we aim for annual savings of at least 3 percent in indirect areas and 6 percent in direct ones. Moreover, we review one of our core cross-departmental processes every year for another 10 percent savings there. There can always be a time when we need to pull on all levers, but identifying and extracting efficiencies is our everyday business. That way we don't have to resort to major savings programs at the slightest headwind.

Could returns drop to single digits in a worst-case scenario?

Even during the 2009 financial crisis we maintained double-digit margins. The company is managed in such a way as to ensure that.

With so much EV investment, does Porsche still need diesels?

Half of the four-door models we sell in Europe run on diesel, and our new-generation Cayenne is engineered for diesel. Audi is about to finish development on the new V-6. We do not intend to make any rash decisions. Porsche is carefully considering the varying levels of demand in individual markets. For this reason, we do not envisage immediately stopping production of diesel vehicles.

How long will you continue to offer diesel variants of your models?

We are keeping all our options open and will tackle specific product decisions as late as possible. Much depends on the extent to which electromobility gains momentum and under what circumstances. Over the course of the next 10 years, we plan to offer optimized combustion engines, plug-in hybrids and full-electric sports cars in parallel. The first all-electric Porsche is set to hit the road in 2019. And you can be assured that this is only the beginning. We will set standards also in terms of e-mobility.

This story is from Automotive News Europe's latest monthly magazine, which will be published Nov. 6. For current and past issues, click here.