The stock prices of Porsche and Ferrari, synonymous with global luxury cars, are diverging. While Ferrari's stock price has risen 8% this year, Porsche's has fallen 21%. The tariff war initiated by the administration of former President Donald Trump has significantly impacted the imported car market, but there are more complex reasons behind the differing fortunes of the two companies.
On the 19th (local time), The Wall Street Journal (WSJ) reported, "The stocks of German automaker Porsche, which suffered a major hit last month, are trading at levels similar to those during its initial public offering (IPO) thanks to recent tariff reductions. However, Porsche is in a strategically difficult position and may struggle to escape this situation."
The reason for Porsche's underperformance is its heavy dependence on the sales of mass-produced sports utility vehicles (SUVs). Generally, luxury car brands employ strategies that limit production, like the "Hermès Birkin bag," to enhance product scarcity. This is to encourage their cars to become expensive collectibles for the wealthy. Such strategies mainly apply to sports cars, and Porsche prominently uses the 911, which can cost up to $250,000 (about 350 million won), as its representative sports car model.
However, in recent years, Porsche has focused on the mass production and sale of SUVs rather than sports cars. This strategy hinders the scarcity of luxury cars. In the first quarter of this year, 61% of the vehicles sold by Porsche were SUVs like the Cayenne and Macan, rather than sports cars. In contrast, Ferrari limited the sales of its SUV model, the Purosangue, to 20% of its total sales. As a result, Porsche's price-to-earnings ratio (PER) is about 18 times, while Ferrari's PER is at 47 times.
Porsche, which has adhered to mass production focused on SUVs, cannot escape the direct hit from the 25% tariff on imported cars imposed by the Trump administration. Luxury car brands like Porsche, Ferrari, Lamborghini, and Maserati all produce their cars in Europe for export. However, for sports cars targeting the ultra-wealthy, they can pass on price increases due to tariffs to customers. WSJ evaluated, "The 911 has price-passing power, but the Macan does not."
Porsche's SUVs must compete with other automakers that have factories in the U.S., which is not an easy situation. BMW has a plant in Spartanburg, South Carolina, and Mercedes-Benz has a production facility in Tuscaloosa, Alabama. They are relatively free from the Trump administration's tariffs on imported cars. Porsche SUVs, produced only in Europe, are bound to fall behind in price competition with these companies.
WSJ stated, "Famous for its iconic 911 sports car, Porsche has now become an SUV manufacturer without a factory in the U.S.," adding, "While the luxury car market traditionally succeeded by focusing on either luxury collectibles or mass-produced SUVs, Porsche has found itself in a contradictory position while trying to catch two birds with one stone."
Porsche has also failed to transition its flagship SUV to electric vehicles. The company set a goal to convert 80% of its entire vehicles to electric by 2030 and has launched the second generation of its fully electric model, the Macan. However, it has seen a sharp decline in exports to China, the largest electric vehicle market, as it struggles to compete with local companies. In the third quarter of 2022, Porsche shipped 28,085 units to China, but in the first quarter of this year, that number dropped to 9,471 units. Particularly, the global shipment of the Taycan electric model is just around 4,000 units.
The outlook for Porsche to escape its current dilemma is not bright. While Ferrari is structured to sustain its current management model with the Anelli family as its largest shareholder, 75% of Porsche's equity is held by Volkswagen. It means that the management, accustomed to mass production, is controlling the fate of this luxury car brand. Philip Hucheois of the U.S. investment bank Jefferies noted, "I don't know whether Porsche will maintain this (mass production-centered) mindset or abandon it."