Porsche is set to reduce its workforce by nearly 4,000 jobs as part of a broader restructuring initiative aimed at improving efficiency. The move comes as the company grapples with falling sales, rising costs, and intensified competition in the automotive market.

Sales Decline and Profit Warning

Porsche shares experienced a 4.9% drop in Frankfurt on Wednesday following the company’s announcement of its second profit warning in just two months. A combination of lower sales and rising costs has led to growing concerns about its financial performance.

In 2024, Porsche reported €40.1 billion in group sales revenue, which represented a 1% decline compared to the previous year. Although competitive pricing and expanded customization options helped mitigate some of the financial losses, the company’s operating profit fell from €7.3 billion in 2023 to €5.6 billion in 2024. The operating return on sales also dropped from 18% to 14.1%, reflecting tighter profit margins.

Porsche’s struggles were compounded by its February announcement of a €800 million investment in hybrid and internal combustion engine models. While this move aligns with the company’s long-term strategy, it is expected to negatively impact short-term profits. As part of its restructuring, Porsche plans to cut 1,900 jobs by 2029, in addition to the 2,000 positions being lost as temporary contracts expire. Employees have been offered severance packages or early retirement as part of the transition.

Industry Woes and Rising Competition

The automotive industry, in general, is facing significant challenges, according to Russ Mould, investment director at AJ Bell. The shift toward electric vehicles (EVs) has been complicated by inconsistent regulations and varying consumer interest. Rising competition from Chinese car manufacturers and weak consumer confidence further strain traditional automakers like Porsche.

“Porsche has faced supply chain disruptions and delays in launching new models,” said Mould. “With tariffs now in play, reaching a 20% profit margin has become even more difficult.”

Mould also pointed out that while Porsche’s restructuring efforts and leadership changes could help the company in the long run, short-term improvements are unlikely. Despite its efforts, Porsche is targeting a return to sales margins above 20%. However, given the current market conditions, the company anticipates margins to remain between 15% and 17% in the near future.

Slower Growth in China and EV Competition

Porsche, along with other luxury German carmakers like Audi and Mercedes-Benz, is facing weakened demand in China. Rising living costs and a shift in consumer spending have made premium products less attractive to many Chinese buyers. This trend is exacerbated by heightened competition from Chinese EV manufacturers such as BYD, Geely, and SAIC, who are aggressively expanding their presence in Europe with affordable, well-designed, and tech-forward vehicles.

The slowdown in EV demand across Europe has also contributed to Porsche’s struggles. High interest rates and inflation continue to dampen consumer spending, affecting the sales of premium vehicles. This decline in EV demand is not unique to Porsche; Tesla has similarly been impacted by growing competition from Chinese automakers, with the company losing 40% of its market value so far this year.

In addition to these challenges, Tesla is also dealing with reputational issues. Consumers have distanced themselves from the brand due to CEO Elon Musk’s increasing involvement in U.S. politics and his controversial support for far-right figures in Europe, further complicating the brand’s image.

Outlook and Strategic Adjustments

As Porsche navigates these turbulent times, the company is focused on restructuring to improve its efficiency and long-term profitability. However, with growing competition from both traditional and new entrants to the market, particularly in the EV space, the road ahead will require strategic adjustments.

The shift to electric mobility is a major factor influencing Porsche’s future direction. While its investment in hybrid and internal combustion engine models may help bridge the gap in the short term, the company must balance these efforts with accelerating its transition to fully electric vehicles.

Porsche is also likely to continue navigating the challenges of supply chain disruptions and changing global trade conditions, including tariffs that may further impact margins.

What’s Next for Porsche?

The company’s current focus is on restructuring its operations, investing in new technologies, and responding to market shifts. With job cuts and changes in its workforce, Porsche aims to streamline its operations to ensure sustainability in a rapidly evolving industry.