Is the Porsche bubble bursting? Job cuts and lower margin target hit iconic carmaker

The road to profitability has become considerably bumpier for Porsche AG.

The luxury carmaker has been forced to lower its medium-term profitability target, marking another setback since its blockbuster initial public offering (IPO), as earnings slump due to declining sales in the crucial Chinese market.

Chief Financial Officer Jochen Breckner revealed on Wednesday that the German brand is now aiming for a return on sales of between 15% and 17% in the medium term, a more modest ambition than the previously stated target of as much as 19%.

This year will mark the beginning of an “extensive rescaling,” involving substantial investments in new models, software development, and battery technology, which are expected to impact financial results in 2025, the Volkswagen AG-controlled manufacturer stated.

While Porsche is planning an additional 911 and mulling a new SUV line toward the end of the decade to grow and improve on their popular product selection.

Market reaction

The market responded negatively to the news, with Porsche shares falling as much as 5.2% on Wednesday.

The stock has now more than halved from its peak in May 2023, reflecting growing investor concerns about the company’s ability to deliver on its initial promises.

Porsche has struggled to maintain a consistent path toward the lofty margins it envisioned during its 2022 listing.

The company’s journey has been hampered by declining sales in China, weakening demand for electric vehicles in Europe, repeated revisions to financial guidance, model delays, and persistent supply-chain disruptions.

In response to these challenges, Porsche has recently pulled back on its ambitious EV targets and announced plans to invest €800 million ($872 million) in developing more models powered by traditional fossil fuels, signalling a renewed focus on its established strengths.

The iconic 911 maker is also undertaking significant management changes, replacing key board members and implementing job cuts to streamline operations and reduce costs.

The company has since stopped renewing 2,000 temporary worker contracts.

It has also moved to decrease its Germany headcount by 1,900 workers.

Price wars and regional challenges

In China, Porsche has made a strategic decision to forgo steep discounts, even as a fierce price war involving more affordable car brands seeps into the luxury segment.

Chief Executive Officer Oliver Blume told reporters that the company has responded to the sales slump by reducing volumes and revising its strategy, including updating current models with new in-car features to enhance their appeal.

The numbers tell the story

The lower target came as Porsche reported that operating profit in 2024 plunged 23% to €5.64 billion from a year earlier.

Sales also experienced a decline, falling 1.1% to €40.08 billion.

While the company’s return on sales was 14.1%, it is at the lower end of its own projected range.

Despite lowering its medium-term target, Porsche maintains its long-term margin goal of exceeding 20%, indicating a continued commitment to profitability.

Porsche last month said it anticipates up to €40 billion in sales this year, with a return on sales as low as 10%.

VW said that they expect to see flat performance this year, even with pressure coming from European markets and trade disputes.

Trade war looming

Adding to the challenges, the automaker’s US business, which imports all its cars, is vulnerable to any tariffs imposed by President Donald Trump.

In response, Porsche would consider raising prices to avoid further pressure on margins, as confirmed by Breckner.

As Porsche faces a challenging year of transformation, the coming months will reveal whether the company’s strategic adjustments can steer it back on course toward achieving its ambitious profitability goals.

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