Porsche cuts China dealership network as challenges mount
Q3 operating profit down 41%, below LSEG estimate
To adjust retail network in China on persisting weakness
Confirms 2024 outlook
Recasts throughout
By Ilona Wissenbach and Christoph Steitz
FRANKFURT, Oct 25 (Reuters) -Porsche will pare back its dealership network in China, reflecting persisting weak demand in the world's biggest auto market that has severely hit European carmakers and forced them to cut costs to soften the blow to profit margins.
Porsche is seeking billions of euros in cost cuts by 2030, Chief Financial Officer Lutz Meschke told journalists after presenting a 41% drop in third-quarter operating profit.
"China is an incredible challenge, not just for Porsche," Meschke said. "In the future, we can no longer assume that China will return to where it was for European players."
Meschke said Porsche's cost structure will be adjusted to reflect global annual vehicle sales of around 250,000, down from the more than 300,000 it sold in recent years.
Porsche, majority-owned by Volkswagen VOWG_p.DE, said weaker demand in China and a slower-than-anticipated shift to electric vehicles forced it to review its product lineup, budgets and costs.
"All with the aim of increasing our flexibility and resilience even further," Meschke said, adding that Porsche faced a structural shift in demand in China, where an economic crisis has hit spending on luxury goods.
"We're not giving up on the Chinese market but we need to face the facts," he said, adding vehicle sales in China were expected to stagnate in 2025 compared to this year and that Porsche would significantly cut its local dealership network.
Third-quarter operating profit fell 41% to 974 million euros ($1.05 billion), below the 1.08 billion average estimate by analysts, according to LSEG, while sales for the period fell to 9.1 billion euros, resulting in an operating margin of 10.7%. That margin was far below its 17%-19% medium-term margin outlook.
Porsche's comments chime with those of peers BMW BMWG.DE and Mercedes-Benz MBGn.DE, which heavily depend on China and are under pressure to slash costs and seek sales growth elsewhere.
Mercedes-Benz on Friday said it will step up cost cuts after earnings halved in the third quarter due to tepid demand and fierce competition in China, posting the worst return on sales in its key car unit since the pandemic.
Porsche confirmed its 2024 outlook, still expecting sales of 39 billion to 40 billion euros and an operating margin of 14%-15%. Analysts' average estimates are for 2024 sales of 39 billion euros and a profit margin of 13.8%, according to LSEG.
($1 = 0.9256 euros)
Reporting by Ilona Wissenbach and Christoph Steitz; Editing by Miranda Murray, Louise Heavens and Rod Nickel
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