Slump at Porsche E-car dreams burst, internal combustion engines are back!

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Porsche once pursued one of the most ambitious e-car strategies in the industry, now the Swabians announce a change of course—back to the internal combustion engine. What this is all about.

Electric cars and Porsche don't seem to go together at first glance. Where there was once a roar and stench in the seemingly old internal combustion engine world, there was only a faint hum to be heard. Nevertheless, the Zuffenhausen company (located in Germany) had set ambitious goals—now they are adjusting their strategy, among other things, due to weak demand and problems in China.

The group, which is majority-owned by Volkswagen, plans to use significant funds to counter the crisis: Porsche expects additional burdens of up to 800 million euros for the current year—among other things, to develop new cars with combustion or plug-in hybrid engines and to offer more special and exclusive equipment. Additionally, investments are to be made in battery activities, and the organization will be restructured. CEO Oliver Blume is accepting a significant drop in the operating margin for this, as the Volkswagen subsidiary unexpectedly announced on Thursday evening. Already in 2024, the company came under considerable pressure according to preliminary figures.

Weaker return

According to preliminary calculations, Porsche's operating margin last year was at the lower end of the targeted range of 14 to 15 percent. In 2023, Porsche had still achieved 18 percent. The weak performance in China and the introduction of new models in most of the automaker's model lines had a negative impact.

This year, the margin is likely to slip to 10 to 12 percent due to the expensive program to strengthen short- and medium-term earning power, but also due to market-related reduced sales expectations. Porsche actually has entirely different ambitions: In the long term, Blume aims to achieve more than 20 percent return on sales.

However, high investments are now necessary for this—that has been clear since Thursday. But why does Porsche have to rethink?

Farewell in installments

Porsche had long been one of the most ambitious e-car strategies in the industry. By 2030, more than 80 percent of sports and off-road vehicles were to roll off the production line with a fully electric drive. The electric motor is superior to the combustion engine in the long term, Porsche CEO Oliver Blume emphasized on more than one occasion. It was planned that almost all models would gradually be converted to electric drives, with the exception of the 911.

There have been signs for some time that the company is backing down on its ambition. Initially, it was emphasized that the goal depended on demand and the development of e-mobility worldwide. Later, it was said that existing combustion models would be refreshed and built in parallel for some time.

In the fall, the now disgraced CFO Lutz Meschke announced that they were considering equipping the originally purely electric vehicles with a hybrid drive or an internal combustion engine in the future. It's the fish that must find the worm tasty, it was said.

Problem child China

Because that does not seem to be the case at the moment: Demand for cars from Zuffenhausen is weakening. Last year, Porsche sold a good 310,700 units—three percent less than in 2023. In China, the world's most important car market, the decline was 28 percent. Porsche attributes the drop mainly to the difficult economic situation in the region.

Only a small portion of the sold vehicles had an electric motor: The Taycan, on the market since 2019 and modernized last year, sold poorly recently. In 2024, about 20,800 vehicles were delivered. Compared to the previous year, this number has almost halved.

Last year, after long delays, Porsche also converted the compact SUV Macan to electric drive in Europe. The car is now reaching customers in the midst of the electric lull. From September to December 2024, nearly 18,300 units were delivered. It's quite possible that this model—a bestseller so far—might get a combustion engine again. Porsche has not yet provided details about the strategic shift.

Does Blume's dual role remain an issue?

Stefan Reindl from the Institute for Automotive Business says: "The ongoing reports from the company will probably once again lead to a discussion about Oliver Blume's dual role as Porsche CEO and as Chairman of the Volkswagen Group." He may have to succumb to this pressure so that the profit driver Porsche can return to calmer waters after the board's restructuring.

The return to the combustion engine is a logical step for automotive expert Ferdinand Dudenhöffer. "Porsche, like Mercedes or VW, relied on the words and promises of politicians from Brussels and Berlin. And they were left stranded." The subsidies for e-cars were stopped overnight. Similarly, politicians told the story of synthetic fuels and the eternal life of the combustion engine. "With that, our politicians have reprogrammed customers' minds," said Dudenhöffer.