Porsche Applies Large Markdown For Taycan EV As Demand Runs Out Of Juice
Germany's largest automaker has recorded sliding profitability, with its China unit under pressure as demand for luxury automobiles wanes. Specifically, demand for its Porsche Taycan has run out of juice, leading to significant markdowns.
Bloomberg Intelligence's Joel Levington published a note on Monday highlighting the bleak demand story for the Porsche Taycan, which has forced the struggling German automaker to offer markdowns of $22,500. Additionally, the vehicle's used value plummeted in 2024, while data from iSeeCars research finds the Taycan the most expensive alternative fuel vehicle to drive on miles used per year.
More from Levington's report:
Porsche Taycan $22,500 Markdown, Yet It's the Most Expensive EV
Porsche is offering a $15,000 match on top of $7,500 in lease incentives to clear out 2024 Taycan models, yet iSeeCars research finds the model the most expensive alternative fuel vehicle to drive based on miles used per year. Porsche's increased use of discounting and rapid deterioration in its core China market has slashed more than $30 billion from its market cap since April, and has reduced risk views below luxury rivals Ferrari, BMW and Mercedes for the first time since its IPO in 2022.
China Swoon Accelerates Risk
Porsche's one-year default risk has nearly tripled since cutting its revenue outlook last July, supporting our view of a strong, albeit weaker, risk profile. Porsche's default risk screens similar to low-A peers like Anheuser-Busch, Adidas and Reckitt Benckiser as well as higher-rated but more volatile issuer Alibaba. The outcome from Bloomberg's DRSK matches Credit Benchmark's view of the unrated company. Porsche screens as between Honda (A3/A-/A) and Mercedes (A2/A/Au) in our fundamental analysis utilizing Moody's global automotive methodology.
Taycan Value Plummets in 2024
Financial Services Poised to Fall for Third Consecutive Year
Porsche's captive finance unit's profit may bottom in 2024 at approximately $300 million, a decline of 20% from peak 2021 levels, yet is a modest profit driver, with the automotive unit expected to generate $5.3 billion in operating profit this year. The finance unit has taken price increases to offset higher funding costs, yet margin compression, lower penetration in China and a higher credit risk are impairing profitability, which is below Mercedes and BMW from a margin standpoint. The unit is supported by ample liquidity of €6.2 billion and a €4 billion master loan agreement with Volkswagen.
Declines in used pricing can impair Porsche residuals, potentially a headwind to financial services earnings
Porsche Falls Behind Mercedes on Ratings Track
Porsche AG's standalone creditworthiness screens at A2, slightly behind Mercedes (A2/A/Au) and a notch below BMW (A2/A) and unrated Ferrari. Our views are largely unchanged from our June analysis, but the company's weaker 2024 outlook has reduced flexibility. The analysis incorporates 2024-25 profit and cash flow expectations under Moody's global automotive methodology. Our analysis is also fairly consistent with Credit Benchmark, which screens to a low A rating on a positive trend. The complexity of the Volkswagen organization structure, including the sharing of the chairman, could weigh on raters' views of Porsche's ESG profile. The lack of a well-defined leverage target and goal of a 50% dividend payout may also be a constraint.
Iconic Luxury Brand Viewed as Metal Bender
Porsche AG would likely be rated by an automotive team instead of a luxury goods group at the agencies, based on our conversations with them for Porsche and Ferrari. Yet, our checks against these peers suggest an A tier rating might also be warranted under the different methodology. Porsche's scale, geographic diversity and modestly leveraged balance sheet generally screen well against issuers such as Richemont (A+), Diageo (A3/A-/A-u) and Estee Lauder (A2/A). While robust for the auto sector, Porsche's margins and cash generation are somewhat of a shortcoming relative to the luxury peer group and Ferrari.
The Volkswagen Group, which owns 10 brands, including Porsche and Audi, has faced significant challenges in the EV demand game amid a price war with Tesla and Chinese EV companies running circles around the Germans. Meanwhile, Germany's manufacturing recession highlights the broader economic troubles across the continent.