By William Boston
Most companies are obsessed with growth. At Porsche AG, the
challenge is to stay small.
Porsche's foray into bigger volume products such as the Cayenne
and Macan sport-utility vehicles is fueling rapid growth of the
iconic sports car brand, but it isn't easy to grow fast and
maintain high profit margins. Sales of Porsche cars have risen
nearly threefold since the launch of the Cayenne in 2002 and could
exceed 200,000 cars this year.
That's tiny compared with Porsche's parent, Volkswagen AG, whose
namesake VW brand sold 4.6 million cars last year. But luxury
brands like Porsche live from their exclusivity. While premium
brands Audi AG, BMW AG and Daimler AG's Mercedes-Benz brand ramp up
production to grab volume, Porsche is applying the brakes--even as
demand for its sports cars and SUVs grows.
"Our response is simple: we limit availability," says Porsche
Chief Executive Matthias Müller.
That doesn't mean that Porsche won't sell more cars this year
than last year. But ultraluxury brands like Porsche and its rivals
Ferrari SpA or Aston Martin Lagonda Ltd. need to find a way to
balance certain contradictions. The more omnipresent their cars
become through higher sales volume, the harder it is to charge a
premium for an exclusive brand.
"If everyone drives a Porsche, it's not exclusive," says
Porsche's Chief Finance Officer Lutz Meschke.
With the rise of emerging markets and expansion of the global
middle class, the market for luxury autos is also becoming larger.
Research group IHS Automotive predicts that in the decade to 2020
sales of ultra-premium brands will almost triple to 353,000 cars a
year. This doesn't include premium car makers such as Audi, BMW,
and Mercedes.
"There are a growing number of professional and middle class
people around the world who can afford these cars," says Tim
Urquhart, automotive analyst at London-based IHS Automotive.
Porsche's rivals Aston Martin and Ferrari also see limits to
growth. Ferrari wants to boost production but does not want to
exceed 10,000 cars in order to defend its high price tag. Aston
Martin sees the line much lower.
"This is not a car company that is ever going to be selling a
lot of cars. Part of its mystique is the exclusivity. I would argue
the magic number for our production is right around 7000 units,"
Andy Palmer, CEO of Aston Martin, told The Wall Street Journal in a
recent interview.
The Cayenne, which went on sale in 2002, was the proof of
concept that there is a large market for high-end luxury SUVs. The
year the Cayenne launched, Porsche sold a total of 66,803 cars, of
which 20,603 were the new Cayenne. Right from the start, the SUV
made up nearly a third of Porsche's total sales.
Last year, Porsche added the Macan compact SUV and sold 44,636
units the first year--although the car way only on sale for seven
months of the year. This year, the first full year of availability
of the Macan, sales are expected to be much higher, say
analysts.
By the end of 2014, Porsche's global sales had risen to 189,849
cars, 58% of which were Cayenne and Macan SUVs.
"If they wanted to chase volumes and be a 300,000 to 500,000
unit car maker they could do that," says Mr. Urquhart. "More likely
they won't be chasing volume but will try to expand the brand."
Porsche is making plans to develop a new model by the end of the
decade and expects to announce details in the "not too distant
future," said Mr. Müller at the company annual news conference last
week.
Mr. Müller hinted strongly that Porsche could develop a
battery-driven car to challenge Tesla.
"If at the end of the decade the time is ripe for a battery
driven vehicle--then why not?" he said.
Porsche is unique in that it has its feet in both the
ultraluxury market and the premium market that is dominated by Audi
AG, BMW AG and Mercedes-Benz. The Stuttgart-based sports car maker
sells more cars than its combined ultraluxury rivals Rolls-Royce,
Bentley Motors, Aston Martin Lagonda, Bugatti, Ferrari, Automobil
Lamborghini SpA, Maserati SpA, Maybach and McLaren Automotive Ltd.,
says Mr. Urquhart.
Audi's Q5 SUV and Porsche's Macan are based on the same
architecture, yet the Macan commands a higher price and is more of
a sports car in its performance and handling.
The new generation of Audi's top SUV, the Q7, will go on sale in
Europe in June and fetch a starting price of EUR60,900 ($64,371).
That is not much less expensive than the entry Cayenne model, which
starts in Germany at EUR65,427. The Cayenne is aging, though, and
some analysts expect Porsche to significantly boost the price of
the next generation.
Porsche sees its high price tag as competitive advantage, one of
the factors that lends it exclusivity, and has no intention to
sacrifice price for sales as the German premium brands have
done.
"They've lowered the bar," says Mr. Meschke. "But that would be
deadly for us because it would taint our image of exclusivity. We
don't want to grow at any price."
Porsche does pay a price for the growth of its SUVs. They sell
more SUVs than classic sports cars, but the margins are
thinner.
Porsche's profit margin slipped to 15.8% in 2014 from 18% the
year before--in part because of the growth in the share of SUVs in
its sales.
"It is a fact that we earn less on the Macan," says Mr.
MA1ller.
Nevertheless, Porsche expects to achieve a profit margin of at
least 15% this year and to sell more cars than ever before in its
storied history. Commenting on the company's forecast of boosting
sales to 200,000 cars this year, Mr. Meschke takes on a nearly Zen
attitude.
"It's just a number," he says, "not a target."
Eric Sylvers contributed to this article.
Write to William Boston at william.boston@wsj.com
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