Luxury Automaker Faces Profit Margin Squeeze Amid China Woes and Trade Tensions

Porsche stock (POAHY) took a hit after the company downgraded its profit outlook and hinted at passing tariff costs onto customers.

Profit Forecast Cut as Challenges Mount

The German luxury automaker revised its 2025 operating return on sales (ROS) forecast to 10%-12%, a sharp decline from 14.1% in 2024 and 18% in 2023. Rising costs, a challenging Chinese market, and ongoing product revamps were cited as key factors affecting profitability.

For the medium term (two to five years), Porsche now targets an ROS of 15%-17%, down from its prior estimate of 17%-19%. However, the company remains optimistic about the long term, maintaining a goal of 20%+ ROS beyond five years.

China Market Struggles and Tariff Pressures

Porsche’s declining margins come amid growing competition and aggressive price cuts in China, which have significantly impacted revenue. Additionally, concerns over potential U.S. tariffs on European car imports, driven by President Trump’s trade policies, are further weighing on Porsche’s financial outlook.

CFO Jochen Breckner acknowledged that tariff costs might be passed on to customers, stating:

“When the subject [of tariffs] becomes concrete, we will assess which price options there are to pass on to consumers. We have a very strong brand, a great customer base, and a great product. So in the first place, we would look into additional pricing to preserve margins.”

Cost-Cutting Measures and EV Strategy Shift

As part of its response to economic pressures, Porsche announced plans to cut 1,900 jobs by 2029 and allow an additional 2,000 contracts to expire within the same period.

Meanwhile, the company is adjusting its electric vehicle (EV) strategy due to declining demand. CEO Oliver Blume confirmed a refreshed product lineup, balancing gas engines, plug-in hybrids, and battery EVs to align with shifting market trends.

Stock Outlook and Analyst Warnings

Porsche reported €40.08 billion ($43.66 billion) in revenue for 2024, marking a 1.1% decline, while operating profit fell 22.6% to €5.64 billion ($6.14 billion).

Amid ongoing uncertainties, CFRA analyst Garrett Nelson reiterated a Sell rating on Porsche stock, cautioning that:

“With 28% of 2024 vehicle deliveries coming from North America, the new U.S. administration’s tariff policies could further impact Porsche’s guidance.”

As trade tensions, cost pressures, and shifting EV demand reshape Porsche’s strategy, investors remain wary of potential further profit downgrades.