According to Porsche’s Q1-Q3 2023 delivery data, global deliveries increased by 10%. Both European and North American markets achieved double-digit growth, but China lagged, seeing a 12% decline.
Porsche attributed the decline to ongoing economic challenges. But is that the real story?
China’s Slowdown
For the first nine months of 2023, Porsche delivered a total of 242,700 vehicles, a year-on-year increase of 10%. European deliveries reached 51,700, a 23% increase primarily driven by a 19% rise in German deliveries. North America also saw a double-digit growth of 14%, delivering 64,500 units. Deliveries in emerging markets, excluding China, and other markets were 40,900, up 23%. However, China’s deliveries decreased 12% year-on-year to 60,700.
From the data provided by Porsche for the first nine months of 2023 and the first half of the year, Q3 2023 deliveries slightly declined by 0.38% year-on-year to 75,400. Notably, the Chinese market underperformed, with deliveries plummeting 40% year-on-year to 16,900.
However, it’s crucial to note the data from the China Passenger Car Association shows a 2.4% increase in total car sales in mainland China for the first nine months of 2023, reaching 15.233 million units. New energy vehicle sales rose 33.8% year-on-year to 5.188 million. Tesla’s wholesale and retail sales also grew by 3.9% and 8.4% respectively.
These figures suggest that Porsche’s decline in China is due to its internal issues, rather than a downturn in Chinese car consumption.
In fact, new energy vehicle sales in mainland China continued to grow strongly by over 30%. In contrast, Porsche’s electric car deliveries declined in the first half of the year, mainly due to supply chain issues. However, by Q3, deliveries rebounded significantly, possibly making up for unfulfilled orders from the first half.
The table below reveals that, compared to the robust growth of new energy vehicles in mainland China, the performance of Porsche’s electric car brand Taycan in the first three quarters of 2023 was not particularly impressive.
As Porsche has noted, it faces intense competition, especially in the Chinese market.
Apart from competing with traditional car manufacturers, Porsche also faces competition from electric vehicle manufacturers. Many of these manufacturers are already active in the luxury car segment or are expanding into the ultra-luxury market.
Competition in the Battery Electric Vehicle (BEV) industry is expected to intensify, especially in China. Porsche not only competes with new electric vehicle manufacturers but also with existing BEV manufacturers. These BEV producers might introduce luxury or ultra-luxury vehicles at lower prices to compete with Porsche.
Furthermore, Porsche is also competing with car manufacturers offering other propulsion technologies, such as hydrogen fuel technology, which might have advantages over electric vehicles.
Porsche acknowledges that competition in the Chinese market is fierce. Especially with Chinese EV manufacturers in the luxury car segment gaining significant market share in recent years. They leverage local advanced technologies, industry positioning, and domestic consumer support for local brands to win consumer trust.
Additionally, Porsche revealed that US customers, who are most concerned about the battery range of electric cars, believe that BEVs with longer battery life will be more competitive. This implies that if Porsche does not perform well in these two areas, it will lose customers in both China and the US.
Currently, Porsche’s electric vehicle offering is the Taycan series, with a starting price of 88,400 euros, approximately 680,500 RMB. In China, the starting price of the Taycan is currently 968,000 RMB, while the pure electric versions of BMW and Mercedes-Benz are priced similarly. The newly launched BYD “Look Up” is also priced from one million… In addition, there are high-end pure electric vehicles like NIO and Tesla that are both cost-effective and innovative, competing with top brands.
In the face of such diverse brands, how will Porsche secure its position? This might be traced back to Volkswagen’s new energy strategy.
Porsche’s Separation under Volkswagen’s New Energy Strategy
Under Volkswagen, there are several luxury brands, including Audi and Porsche.
Volkswagen announced that it will reduce 60% of its gasoline and diesel car production lines in Europe before 2030, which might affect at least 100 models.
Audi is already listed, and Volkswagen seeks to establish independent financing channels for Porsche to proceed with its electrification process, freeing up resources for its strategic layout.
In September last year, Volkswagen divested a minor stake in Porsche, assisting its listing on the preferred stock market, but Volkswagen still retains most of its equity.
Porsche’s IPO documents reveal that Porsche’s public listing had a share capital of 911 million shares, with common shares (unlisted) and non-voting preferred shares (listed) split equally. Common shares are indirectly held by Volkswagen and Porsche SE, while Volkswagen divested a small portion of its preferred shares for cash and introduced external shareholders to Porsche.
After Porsche’s listing, Volkswagen and Porsche SE still own all the common shares, with Volkswagen indirectly holding 75.8% of Porsche’s non-voting preferred shares and allocating 24.2% of the preferred shares to other investors and the public.
These other investors may include the sovereign wealth fund Qatar Holding, the Norwegian Central Bank Investment Management Company, the US investment fund T. Rowe Price, and Alpha Oryx Limited.
The goal of Volkswagen’s move, besides cashing out, is more importantly to provide Porsche with liquidity, access to capital markets, and to highlight its intrinsic value.
It’s noteworthy that Porsche has been investing heavily in electric vehicle R&D in recent years.
From Porsche’s financial data, over half of the R&D (including capitalized development costs) was invested in the electrification transformation of its product line. After launching the all-electric Taycan model in 2019, Porsche’s current development resources are mainly focused on the development of all-electric Macan, 718, and Cayenne, as well as the hybrid versions of the 911, Panamera, and Cayenne.
Porsche’s New Energy Development Strategy and Goals
Porsche states that electrification is at the core of its strategy. The goal is that by 2025, over 50% of new vehicles delivered will be electric vehicles, and by 2030, this proportion will exceed 80%.
The Taycan launched in 2019 is Porsche’s first electric car model. In addition, Porsche will release a pure electric version of the Macan and convert the 718 model and Cayenne to pure electric vehicles. In May 2021, Porsche released a test of the electric Macan, planning to start deliveries from 2024.
Porsche estimates that the proportion of all-electric vehicle deliveries in 2023 will be between 12%-14%, and for the first nine months of 2023, this ratio is 11.5%.
Platform: To support future car releases, Porsche is designing a modular platform for electric vehicle development called the Premium Platform Electric (PPE) in collaboration with Audi. This platform is expected to provide development support for the pure electric Macan, the electric Cayenne, and more electric cars in the medium to short term.
In addition, Porsche is developing a Scalable Systems Platform (SSP) with Volkswagen Group and Audi. This platform is developing a sports car version for Porsche (SSP sports car version). The 911 and 718 models will continue to be designed and manufactured on Porsche’s modular architecture, regardless of the type of propulsion system.
In terms of software, Porsche is collaborating with Volkswagen’s software subsidiary CARIAD to develop a unified Volkswagen Group technology and software operating system. Their goal is to create a next-generation universal software platform and related hardware architecture for the group (i.e., the E3 1.2 platform) (Audi is also collaborating on the development of the E3 1.2 platform version). This platform, besides managing various function updates and upgrades, also includes engine and safety features (such as ADAS and intelligent braking, as well as infotainment systems).
Currently, Porsche is working with CARIAD and Audi to develop the E3 1.2 platform for the upcoming pure electric Macan.
Battery: In May 2021, Porsche and the specialized lithium-ion battery developer Customcells established a joint venture called Cellforce. Cellforce develops and produces high-performance batteries for mass-produced vehicles and racing cars, including the group’s future models.
Currently, Porsche may hold about 73% of Cellforce’s equity. The company believes that Cellforce can address its high-performance battery procurement issues in the future.
Cellforce’s initial goal was to start small-batch production from 2024 (i.e., batteries for about 1,000 cars per year). However, in July 2022, Porsche decided to expand Cellforce’s annual production capacity to 1.3 gigawatt-hours (about 10,000 cars), including an additional 10 gigawatt-hours of annual production capacity in another factory in Germany or other parts of Europe. Porsche has approved an additional investment of 171 million euros in Cellforce.
In May 2022, Porsche announced a $100 million investment in the developer of lithium-ion battery silicon-carbon technology, Group14. Group14 has signed a supply contract for silicon-based technology with Cellforce. This technology can be used to enhance the energy density of Cellforce batteries.
Moreover, Porsche also plans to use batteries produced by the Volkswagen Group. Volkswagen’s goal is to produce 240 gigawatt-hours of batteries by 2030, but Porsche has stated that it currently does not intend to invest directly in Volkswagen’s large battery factories.
Charging Devices: Porsche states that it has formulated a comprehensive high-performance charging strategy. This strategy relies on a combination of its own charging stations, joint ventures, and partner-owned charging stations, as well as third-party public charging stations, to address consumers’ electricity anxiety.
Conclusion
Consumption downgrade may be one reason for Porsche’s decline in deliveries in mainland China, but it may not be the main reason. After all, new energy sales in mainland China are growing consistently. Changes in the consumption patterns of the new generation are not necessarily due to a consumption downgrade, but a shift in brand preference.
As Caihua News mentioned in the article “BBA to BBL, Is Audi Falling Behind?”, Chinese consumers’ requirements for choosing new energy vehicles and smart cars may be higher than brand recognition.
Therefore, it’s not about whether they can afford it, but whether they’re willing to pay for the brand. Existence is reasonable. Since “Look Up” dares to make a million-dollar claim, it may mean that BYD’s management is confident that consumers will pay for BYD, and these consumers may come from the market of luxury cars like Porsche.
For Porsche to maintain its advantage in the mainland market, it needs not only a brand but also innovation, technology, infrastructure, and, more importantly, insights into the preferences of the new generation of mainland consumers.
In the new energy vehicle market, everything is starting over. Whether Porsche can combine its past advantages with electrification innovations to win consumer favor is the key to its success.