Porsche Market Position and Competitive Environment
Porsche AG is a German automobile manufacturer specializing in high performance and luxury vehicles located in Stuttgart, Germany. Porsche operates on a global scale and is one of the top competitors in their market. Porsche AG is a subsidiary of the Volkswagen Group along with Seat, Audi, Bentley, Bugatti, Lamborghini, and many more. Porsche’s product line currently consists of six different models of vehicles with many different variations. The most iconic car in the product line is the Porsche 911, which has endured over 55 years of automotive innovation. This heritage helps draw many automotive enthusiasts towards the brand. Porsche is also an innovative brand focusing on electromobility, the future of the automotive industry. My report will include the history, market position, competitive environment, fundamental analysis, and recent publicity of Porsche. This report will be of great value to both my boss and colleagues due to the amount of factual evidence and research that supports this potential investment.
Porsche was founded in 1931 by Ferdinand Porsche. Ferdinand, a previous engineer of Daimler-Benz, decided to create his own company. When Porsche first started, larger automobile manufacturers such as Volkswagen contracted them to design and engineer automobiles. In 1936 Porsche designed and manufactured the famous Volkswagen Beatle from the instructions of Adolf Hitler. From 1936 to 1945 was the darkest period in the history of Porsche. As a result of their headquarters in Germany, they were automatically deemed part of the Nazi party. In cooperation with the Nazi party during WWII, Porsche helped engineer tanks for the German military. After the war, Ferdinand was convicted of charges of war crimes and was imprisoned for 22 months. Once released from prison, Ferdinand and his son Ferry continued the Porsche Brand. For many investors, Porsche’s involvement with the Nazi party was enough reason for them to not associate or support the brand. For this potential investment, we should consider Porsche’s success in the late 1900’s and strive for continuous innovation in today’s automotive industry. In 1964 Porsche introduced the 911 which revolutionized brand. Today we view the 911 as one of the most iconic sports cars ever produced. The 911 contributed heritage and increased the emphasis on high performance for the brand. In 2017, Porsche produced the millionth 911. Today Porsche is one of the leaders in automotive innovation as they plan to invest more than six billion euro in electromobility by 2022. For Porsche as a potential investment, I believe that this large investment in electromobility is a great sign for the future direction of the company.
Porsche is in a niche market segment in the automobile industry. Their main competitors include BMW, Audi, Tesla, and Lexus. Porsche’s current product line consists of the 718 Boxster/Cayman, 911, Panamera, Macan, and Cayenne. Their product line addresses multiple consumer needs from high performance to functionality. This is important for our future investment because it shows that Porsche attracts a variety of customers and is not heavily concentrated on a single product. I have conducted a SWOT analysis of Porsche for our potential investment which includes the internal strengths and weakness and the external opportunities and threats. Porsche’s internal strengths include their precise engineering, quality manufacturing, brand heritage, and product line. Their internal weaknesses are their relatively small size compared other automobile manufactures, conflicts of interest between them and the Volkswagen Group, and Brand dilution from their rapidly growing SUV market. Internally, I believe that the strengths outweigh the weaknesses which support my interest for a potential investment. Porsches external opportunities are support from the massive Volkswagen Group, advancement in electromobility, and expansion to other global markets. External threats include automotive regulation, trade regulation, and involvement in a highly competitive industry. Despite Porsches opportunities, the threats here are a large factor for our investment. Trade regulation currently poses the largest threat to our investment. Donald Trump, the President of the United States, has recently made comments on placing large tariffs on imported cars to stimulate automotive industry growth in the United States. This would cause many potential customers to not purchase Porsche products due to higher costs. Porsche maintains a strong competitive position compared to their rivals. Regardless of their size, Porsche has a loyal customer base. Porsche’s customer base grows daily from their racing history, recent innovations, engineering excellence, and overall brand image. Porsche’s recent focus on electromobility will only strengthen their ability to compete in the automotive industry as a whole and with individual manufacturers such as Tesla. Porsche places more of an emphasis on high-performance automobiles compared to their competitors. This focus on innovation is vital for our investment decision, and I firmly believe this focus sets Porsche apart from their competitors.
The financial stability of Porsche is vital to assess for our potential investment. For the 2017 fiscal year, Porsche has seen an increase in sales revenue by 4.7 percent totaling 21.7 billion euros. This increase in sales revenue supports that Porsche maintains steady growth. Based on the 2017 fiscal year, Porsche’s current ratio was 13.77. From this information, you can conclude that Porsche needs to efficiently manage their current assets to maximize revenue. Porsches current price to equity ratio of 7.47 shows that investors are predicting steady growth for the future. From 2016 to 2017 a 3.7 percent increase in vehicle sales resulted in a higher sales revenue. Over the past two years the Porsche stock value has experienced fluctuations, for example, the Volkswagen emissions scandal in 2015 caused Porsche’s stock value to drop by $2.74 per share. It is currently valued at $6.22 per share. The increase in sales revenue along with the increase in unit sales supports our decision to invest in Porsche. I believe that due to Porsche’s current price-to-equity ratio we will see a future increase in the value of each share.
Recent Innovations and Publicity
Innovation is crucial for automobile manufacturers to compete in such a progressive industry. Porsche has placed a large emphasis on innovation and plans to invest of six billion euros in electromobility by 2022. This focus on electromobility will help the company progressively change as the whole automobile industry does. Porsche has already developed a fully electric vehicle named the Taycan. The production of the Taycan is set for 2019 and will compete with the Tesla Model S and Roadster. This is great news for our investment because Porsche will be one of the first to compete with Tesla in this new segment of the automotive industry. As of September 2018, Porsche announced that they will no longer produce diesel-fueled engines. This was a major decision for the company due to the number of European consumers that purchase diesel vehicles. This announcement only strengthens their commitment towards electromobility and reassures our investment for the future of Porsche. Being a part of Volkswagen Group, Porsche was still negatively impacted by the Volkswagen emissions scandal. The scandal occurred over three years ago when Volkswagen cheated emissions testing to falsely market more efficient vehicles, but it is still prevalent in the company today. This scandal has cost the Volkswagen Group around 30 billion dollars. The scandal has negatively affected Porsche’s reputation and operating ability. For our investment in Porsche, this is a major consideration due to the long-term effects on Porsche and Volkswagen Group as a whole. Although this was a tragedy for the brand, they have seemed to come back stronger by shifting focus on electromobility and dropping diesel vehicles from their product line.
Despite Porsche’s troubled history, it has become one of the most innovative automotive brands today. Engineering excellence and commitment towards electromobility have set them apart from their competitors. Porsche’s product line addresses various consumer needs and is not heavily dependent on a single product. I firmly believe that Porsche is a great investment due to their position in their niche market and their focus on the future of the automotive industry. Financially, Porsche is a stable company and has shown steady growth over the past years. Recent innovations such as the Taycan will address a new segment of the automotive industry, allowing Porsche to become one of Tesla’s direct competitors. There is an immense opportunity in the electromobility segment of the automotive industry, and this could aid rapid expansion for Porsche. I am confident that Porsche is heading in the right direction for the future and will prove to be a stable investment.
- Financial analysis. (2018, March 16). Retrieved October 21, 2018, from https://newsroom.porsche.com/en/annual-sustainability-report-2017/performance/financial-analysis-2017-14986.html
- History.com, E. (2009, November 13). First Porsche completed. Retrieved October 21, 2018, from https://www.history.com/this-day-in-history/first-porsche-completed
- Korosec, K. (2018, April 18). Volkswagen Emissions Scandal: Audi and Porsche Offices Raided. Retrieved October 21, 2018, from http://fortune.com/2018/04/18/audi-porsche-volkswagen-emissions-scandal/
- Porsche plans to invest in electromobility. (2018, February 05). Retrieved October 21, 2018, from https://newsroom.porsche.com/en/company/porsche-doubling-investment-electro-mobility-electrification-six-billion-euro-future-development-plan-plug-in-mission-e-technology-smart-mobility-charging-infrastructure-oliver-blume-14796.html
- PAH3 Porsche Automobile Holding SE Stock Quote Price | Morningstar. (n.d.). Retrieved October 21, 2018, from https://www.morningstar.com/stocks/XMUN/PAH3/quote.html
- Volkswagen Konzern – AR 2017 – Porsche. (n.d.). Retrieved October 21, 2018, from http://annualreport2017.volkswagenag.com/divisions/porsche.html