Are Porsche About To Change FOREVER?

[00:00:00]Hello everybody. If you earned €9 million last year, you'd be fairly happy, wouldn't you? I think for most of us, we deem that a success. However, if the year before you earned over 4 billion, it might not feel that way. And that's exactly what happened with Porsche, who in the space of just a year lost almost all of their profit. And while some might say this is a temporary blip, this is an unusual situation.

[00:00:30]We're living in strange times right now, they'll get back on their feet fairly quickly. There are a lot of people out there a touch concerned about what's going on down in Stuttgart. And today I'm going to be discussing the big question now facing Porsche, which is how do they fix this? And is it actually possible at all? Because I have a concern. You see, I believe Porsche may be about to make the worst decision of their lives, and yet it might still be the right one. Curious? Well, get a brew on and stay tuned for today's episode of JM on Cars. [music] [music] >> [music] >> Today's video is sponsored by the Plaude Note Pro. What exactly is it? Well, it's the dictaphone reinvented for the 21st century. And it can take anything from a minute's rambling to an entire board meeting. And in a few moments, summarize it and write out a nice, handy transcription of everything that has been said using over 10,000 different templates to give you the information you want presented in the way that you need. And using it couldn't be any easier. Simply connect it to your phone and then hold this button to start recording. Click if there's a moment of key importance to note it. and then hold to stop. That's it. The software sorts out all of the rest. I have been using it to take notes for how we're going to relaunch our podcast, the radiator arms.

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[00:03:08]So, on to the topic at hand. What's going on at Porsche? Well, a lot. An awful lot. They, like a lot of manufacturers, have been caught in, well, let's face it, a series of unfortunate events that have culminated in the perfect storm. But, of course, every Western car maker is facing difficulty right now. Rising cost of production and lower consumer spending habits have met in the middle with a huge number of up until now brilliant cars being axed as a result as companies try and simplify and expedite the way they produce things desperate simply to stay afloat. And the big issue for me is that in amongst all of this you have boards that just cannot be satisfied every single year. The company must do better. And the thing for me is I think in this process a great many of them have sold their soul. And to explain this I need to get a tiny bit philosophical.

[00:04:08]There's a thing called private equity though it isn't always responsible for what's going on but very often it is.

[00:04:15]And private equity is basically big investment funds. Sometimes it's one person, sometimes it's a consortium. It varies.

[00:04:23]And these people, as far as I'm concerned, are the worst thing to ever happen to humanity because their goal in life, their one and only goal is to make more money. This doesn't really sound like a bad thing at all. That's simple business. But they don't care how they do it. And how does private equity work?

[00:04:41]Well, let me give you a really, really simple example. And this may be slightly oversimplified, but it's near enough to the truth. Uh, just imagine you have a company that makes um, I don't know tubes or model cars or little concrete Chebbaca heads. It doesn't actually matter what the product is. It's a small company. It's been started perhaps by a couple of people simply passionate about what they do. And they're very good at it, but they're not so good at the business element of things. They're making some money, maybe they're even making a small loss, but the product has gotten recognition. So, it's kind of like Dragon's Den or Shark Tank or whatever they call it in your part of the world. Somebody comes along and says, "Yeah, okay. All right. I like this. I want to invest in it." And sometimes they invest a little bit.

[00:05:27]Sometimes they invest a lot. Sometimes they take a small part of the company.

[00:05:30]Sometimes they take the whole thing. But their interest isn't in making a better product. Their interest is in making more money. And so what they do is they increase the cost of the product and decrease the cost of production effectively giving them a nice big margin in the middle. Now in just about anything there'll always be a bit of room to do this. You've got a product that's really that good and it's built a reputation. Yeah, you probably can charge maybe a little bit more than you have been. And very often there are ways to make something more efficiently.

[00:06:07]There are ways to make it for less, but without compromising it. However, these people rarely stop at what is sensible or logical. They keep going. They start swapping out components, changing suppliers, cutting the corners that they can until what you have is no longer a square. It's a kind of wonky circle.

[00:06:26]Now, I'm a bit of an audio file, and hi-fi companies are absolutely rife for this kind of thing going on because you'll get these firms that have built really incredible reputations over years, and then you'll go and buy something they make because, well, back in the '90s, it was the best thing you could possibly get, and the one you buy, it just doesn't seem that good. And after 18 months, it breaks. You then complain to somebody and they say, "Oh, yeah, they all do that now." because you find out the company behind it has decided to get cheap with certain things. I've seen 20,000 amplifiers where the front has just fallen off because the company making it decided to get cheap. And the thing is that the people responsible don't really suffer for this because what they do is they stay around for maybe a year or two, just long enough to get those reports looking really good, really healthy. So it looks like a company on the up and then they sell and they make lots and lots of money. The new owners come in and what they thought they were getting was a really good healthy business. What they actually got was a business that did have an excellent reputation, did have a great product, but which has now been gutted, and in fact is producing overpriced crap that in fairly soon order people will realize isn't what it used to be, and then it all falls apart.

[00:07:49]And maybe sometimes these people sell the company on before everybody realizes just what a bad situation it's in. And very often the company then just folds entirely. This happens a lot with restaurants as well. I was a big fan of Ed's Easy Diner. I used to go to it when I lived in London about 15 years ago, and there were a few of them. Then one day, there were about 70 of them all over the country. And then, unsurprisingly, they disappeared just as quickly because expansion that rapid isn't natural. It's not right. It shouldn't happen that way. Anybody that's been going to Nando for about the last, I know, 15, 20 years will realize the same thing. Once upon a time, Nando used to be a really, really good value place to eat. For 12 quid, you had a really big meal. Now you don't because the cost has gone up and the portion size has gone down.

[00:08:38]Craft cabbury. Need I say more?

[00:08:42][groaning] How's this relate to Porsche? Well, for a long time, Porsche have enjoyed a very unusual position in the automotive sector because when it comes to luxury goods, and again, it doesn't really matter what it is, there are a few things that makes something luxurious.

[00:09:00]One of which is the quality, of course, of the product, but another is the rarity of it. And this is a reason why, say, BMW doesn't really bother making a supercar. Now, they'll say it's because the M3 is already a supercar just with more doors. But the fact is, it's kind of hard to convince people that a BMW would be worth big money. That is exactly why they bought a Rolls-Royce, because they knew nobody would pay a quarter of a million quid for a 7 series, but they would for a Ghost. Why is an Audi R8 less money than a Lamborghini? Functionally, it's the same car. Well, it's because they know they can charge more for a Lamborghini badge than an Audi one. Why? Well, Lamborghini has the heritage, the history, and it's a rarer thing than an Audi.

[00:09:49]Ferrari, they're expensive cars. They are rare. Ferrari have said that they will never ever build a cheap car. And no more have I ever believed it than now. If you've got anything less than a quarter of a million quid, you are not getting yourself a new Ferrari. Porsche, meanwhile, have dabbled with lower-end cars. They have dabbled with not budget stuff but certainly more affordable cars and they've really sat at that peak of mass production on one side and ultra- low volume exclusive on the other. I mean if you were to draw a line between say Daca and Pagani right in the middle you will find Porsche because they make a lot of cars around about a quarter of a million a year. Compare that with Ferrari's less than 20,000, but they can still charge a premium for them. And the 911 has always been famous in the industry for being one of the healthiest cars when it comes to profit margin.

[00:10:47]Everybody knows Porsche make, well, they certainly made lots of money on the 911.

[00:10:53]Don't believe me? Well, look at the price of any 911. At the minute, a base one is just over £100,000.

[00:11:01]Then compare it with a CN, which on the face of it should be more expensive, shouldn't it? It's a much bigger car with more things in it. It's got its own engines and that so you can't just say, "Oh, well, it's pinched one from VW, therefore it's cheaper." No, it has its own thing. There is no logic to why a 911 is more money than a Cayenne other than the fact Porsche know people will pay it and therefore it makes it very, very profitable. It is why it's one of the very few cars in the entire VW empire that sits on its own chassis.

[00:11:37]What else can you think of that doesn't platform share? Everything at Bentley has a stablemate elsewhere in the empire. Be it VW or Porsche. The Continental is a Panamera underneath.

[00:11:50]The Bentega is just a very poshare egg.

[00:11:53]And this is Bentley. I think the last time Bentley actually had a platform of their own, it was the Mzan. And this is a very storied and illustrious manufacturer with their own heritage and factory. There is no need for a to share a platform with anything else other than the fact it saves VW lots and lots of money. The sheer fact the 911 is allowed to have its own base tells you just how good a thing it is. Because trust me, if there wasn't a financial case for it, that would just be a rebody date. That's simple as that. Okay? And I know that sounds very reductive, but ultimately in business terms, that's what they do.

[00:12:31]That's the whole ethos of VW. And they have been masters of it. They have achieved what British land never could.

[00:12:39]We all know how the VW hierarchy works.

[00:12:42]We know that at one end you've got your seats, your coupras, then your VWs, then you've got your Audi, then you've got your Porsche, then you've got your Bentley, and then of course you had Lamborghini and previously you had Bugatti now separated.

[00:12:57]Everything worked. Even though people knew that these cars had equivalents often at lower prices, they still sold and they sold well. Porsche enjoyed this incredible position whereby it could sell cars in great quantity and yet still command a relative premium for them. And part of that is because the cars were really damn good. But now there's a problem. They are in serious trouble. For the last well near decade now, this zero emissions future has been hanging over Stoutgart like a particularly severe cloud because just about anybody and everybody knows that though EVs aren't, I believe, an inherently bad thing. They are not what sports car owners want and they are not what Porsche buyers want either. Now they had some success with the tyan but it even within its own lifetime has reached a point now whereby nobody really wants it anymore. Now this is not just because of the tyan itself but indeed I think the entire EV marketplace the landscape is shifting and what's not helping anybody are these movements from different legislative bodies on whether we're still sticking with the zero mandate or not. And of course for a company like Porsche, they operate globally, which means that they're trying to have a portfolio of vehicles that they can sell to all different parts in the world. Some of which are saying, "Right, in uh 4 years time, you've got to have everything be either zero EV or something approaching it, maybe even a hybrid." Other places meanwhile going, "Nah, [snorts] sort it.

[00:14:42]Do what you want." But from a manufacturer's perspective, this is very, very difficult. Now, a few years ago here in Britain, we left the EU. And a lot of people thought this is a fantastic thing for various reasons. But in motoring terms, they thought this was great because it meant we'd no longer have to follow EU rules. Well, they got a fairly nasty wakeup call because the reality is, and was always going to be, we are just not a big enough market to be worth building cars specifically for.

[00:15:11]there is just no point making a car in a specification that you can only sell here. So various deals were done whereby we effectively followed the EU standards despite the fact we weren't in the EU itself. And though I know it upset a lot of people, I think this was probably the correct call to make simply because it was the only way I think we were going to keep a lot of the manufacturing industry here. Whether these were good rules or not is an entirely separate issue. And EU7 itself is going to be as big a problem for a lot of manufacturers as going zero emissions. If you want to know what that entails, look it up. But a few years ago, there was a rumor that a lot of car companies were just not going to bother building things EU7 compliant at all because it was so tight, particularly for companies like Porsche, BMW, and maybe even to some extent Ferrari. There was a smaller company that get a few exemptions.

[00:16:06]It just wasn't going to be worth doing.

[00:16:08]They were just going to skip it and go straight to EV. Now, of course, we can tell though the products are there, the consumer demand isn't. Porsche have a number of EVs in their lineup. You've got not just the TYAM, but now Macan EV and Cayenne as well. And let's talk about the elephant in the room, shall we? Where is the Boxster and Cayman EV?

[00:16:34]Now, whatever they're going to call it, 718, 71, who knows? But a little while ago, they kind of closed the order book on the Boxster and Cayman and they said, "Right, that's it." Yeah. combustion engine box to Cayman. They're done.

[00:16:48]They're finished. Venito, I think here we actually got a bit of a state of execution again because our rules aren't entirely the same as those in Europe.

[00:16:55]But even so, the idea was that was it that was done. And the next car was going to be ground up EV. The whole thing was built not to support combustion engines. It was going to be a pure electric car. They were going to skip hybrid for Boxster and Cayman completely. And I personally felt this was the correct decision to make. Don't just compromise, particularly with something as important as Boxster and Cayman. For many people, this is your first entry point into Porsche ownership because for them, a Porsche is a sports car first and foremost. The Macan and Cayenne are the thing you buy next to go alongside your 911 or your box. But you only bought a Cayen or a Macan because you grew up lusting after a 911. Again, this is why the Urus was so successful for Lamborghini, as the RSQ8, not for Audi. It's just that badge. That's all it is. And that badge allows them to do well, frankly, silly things. But Porsche have been worryingly quiet on the old electric Boxster and Cayman front. In fact, the only thing we've really heard from them is that now they've realized that they probably um probably can't get away with just a pure electric Cayman and Boxster. And I'm no engineer, but I know enough that if you've designed the car to be electric only, to try and then put a combustion engine in it is an enormous task. It's absolutely gargantuan.

[00:18:26]And this isn't something they would have done lightly at all. And this is partly responsible for their enormous 4 billion euro shortfall.

[00:18:36]And for a long time, I've had a bit of a conspiracy theory. See, I think that this car, the electric box to Cayman, has been ready for a while. You don't close the order book on one of your key lineups without a replacement ready. A lot of manufacturers would even have a little bit of crossover between the old and the new so you could decide what you want. We haven't even seen an undisguised picture of what these cars are going to look like yet. We haven't seen spec sheets. We haven't seen anything. I was at the Brussels Motor Show earlier this year and I thought you might see something, but nothing. Not a tease, not a bit of it. It's very, very curious. And my suspicion is this. The car is probably really, really good. In fact, it's probably the best electric sports car in the entire world. And let's give Porsche some credit here.

[00:19:32]Ferrari are building the first electric Ferrari. And um, well, it looks like it's going to be an electric pira. And they're doing a lot of stuff and some cool interior things for sure and a lot of promotion work to try and tell people why this is going to be a good car and why you still want to buy it even though nobody does.

[00:19:49]Porsche however very tight lipped and I suspect that's because they know the uncomfortable truth and that is it doesn't really matter how good the car is nobody is going to buy it. They announce it and the order books will sit there unopened. Nobody's going to be that interested because they just don't want an electric sports car and they're fearful of the depreciation even if they do want one. You can't really get a sports car past the company car people either. That's not very easy where with a Tyan you can. And so if they were to announce that car, it would be an unmititigated disaster and no doubt do some serious damage to Porsche's's share price. This of course would in turn have some very serious ramifications for the company which is why I think they've just sat on their hands with it and done absolutely nothing because they know if they show their homework to teacher it's not going to go well. So what they've gone with is the uh automotive industry equivalent of um the dog at it. The new Macan initially designed as an EV only. Now they're trying to work out a way to put a combustion engine back in that tube because likewise they've probably seen the numbers and gone, "Ah, this hasn't gone how we've hoped." Meanwhile, lawmakers are dragging their heels. And the problem is no company really wants to commit to anything as big as this without a guarantee that it's going to be viable for the near future. But all they've had thus far is a slight backtrack from 100% EV to 90%. Granted, that's quite significant. But for a company like Porsche, being told that 10% of your cars can have combustion engines in, well, you might as well be told none of them can. The customers for it do not exist. They don't want it.

[00:21:45]They're not interested in it. It's there and they're not buying it. So, where does that leave them? Well, this is the decision that CEO Michael Lighters has to make. if it's even his decision to make at all because there are powers above him, the PK and Porsche families.

[00:22:03]Now, Mr. Lighters is a man of some note.

[00:22:05]He was formerly of McLaren, but only for a few years. And give the man some serious credit because he made one of the hardest decisions ever, which was to stop the launch of Artura and make sure the car was ready before it went on sale. Unfortunately, when it did go on sale, it turns out that nobody wanted it. And before that he was at Ferrari for quite some time dealing with their hybrid cars. So the SF90 and the 296 though sadly the latter one in particular I think has to be one of the least reliable cars the firm has ever made and that's not a good thing. But before that he was at Porsche I think for about 13 years dealing chiefly with Cayenne. He's got an engineering background and I always like it when engineers are in charge of car companies, much better than accountants.

[00:22:56]And Cayenne, of course, is a massively significant car for Porsche. Being so successful that it gave the company so much money at one point in time they tried to buy VW. A very interesting chapter in automotive history. I did a whole video on it. If you want to know more about that, go and watch it after this one. However, this is where all the stuff I told you at the beginning comes back into play because even with this €4 billion euro kicking the nuts, Porsche is still a profitable company. Now, certainly not anywhere near enough to satisfy its bosses, and Porsche is a hugely important part of the VW empire.

[00:23:35]See, it sells less than a quarter of the number of cars that Audi does, yet it makes more money. Porsche is big. When Dieselgate happened, Porsche was VW's cash cow. And if you know your Porsche history, you'll know that when Dieselgate came along, things changed at Porsche. Many of their racing programs were sadly discontinued, but of more importance to your consumer, things like Goodwill were also erased overnight.

[00:24:05]Where once Porsche was a company that would often try and go that extra mile to help you, all of a sudden that wasn't going to happen. and discount, you can forget about it. In fact, it's only recently that the notion of getting some money off a new 911 has become a thing once again. And in that 10-year period, you also saw this frankly disgusting transformation of Porsche dealers from places of hope and joy to those where you have to get on your knees and beg to be allowed to buy the car that you want.

[00:24:36]However, things they are are changing and I believe Porsche think they've got a solution and this will no doubt be inspired by the likes of Ferrari and Lamborghini. See, if they can't sell that many cars, well, the next best thing is to sell fewer cars with higher margin. And that I think is what they're about to do. You see, they've been talking for a long, long time now about building a sports car that sits above 911. Quite problematic, though, because 911 is famous the world over for taking the fight to things like Ferraris that cost twice as much and doing quite well.

[00:25:16]And so, it would have to be a very, very good car and it's going to cost a lot of money. Let's face it, it's going to cost at least £300,000 if not quite a bit more. I suspect they might actually be thinking of going quite a bit higher than that. Porsche were notably absent recently from the latest iteration of hypercars. So Ferrari had the F80. What a disgusting looking vehicle that is.

[00:25:37]And McLaren the W1, a car that you've all already forgotten about. Well, Porsche didn't build a successor to the 918 and Carrera GT and 959, but I think they might be working on one, and they're probably working on one at a lower price as well. So, you've got the Valkyrie and Valhalla comparison. And these cars are great for their manufacturers because they're made in such small numbers. They don't do too much damage to the overall allowance of emissions and things like that, but they do make lots and lots of money.

[00:26:10]However, this is a dangerous path to start going down because first off, you need to make sure you can find the customers. You need to encourage a number of people to buy this sort of product. And as you ratchet the price up, the number of customers gets smaller and smaller quite dramatically. The number of customers for a £100,000 car is this. The number of customers for a 200,000 car is this. The number of customers for a half million pound car is that. It's tiny. And although this might appear to be a great way for a company to quickly raise a bit of cash, it does create some problems because it involves a philosophical shift. You see, a company like Ferrari can get away with charging £400,500,000 for a car because they're Ferrari.

[00:26:51]Likewise, Lamborghini. But even when McLaren have tried it with certain things, it hasn't worked out. Look at the Elva. Easily one of the biggest disasters in modern times because the consumer wasn't that stupid. Will Porsche build a car that's effectively their version of a Lamborghini Tamario?

[00:27:11]I don't think that they would because I don't think Porsche customers will go in for that because that's not very Porsche. They'll demand something that's built from the ground up as a Porsche.

[00:27:21]If they're going to be spending that kind of money on it, that's what they'll require because they're going to be thinking about the investment potential.

[00:27:28]And you can already see what Porsche has been doing over the last few years. I mean, how often have they made a big song and dance about the regular Carrera? They haven't. They're always talking about the high-end models, the GTS, or the increasing number of limited run cars, DAR, ST, SC. There are more variants of the 911 now than there ever have been. And it's the ones at the top end that people are interested in because they're all convinced they can make money with them, but it's already beginning to fall apart. The entry price of the GT3 has gone up and up and up.

[00:28:02]The RS, the same thing. But when you look at what people are trying to do in the aftermarket trying to make money, well, it's already collapsing. It's already falling apart. It's not working anymore because customers have gotten wise to just how many of these things there are. And this is where it gets tricky because if you're going to try and ask big money for your car, which you know has a big margin in it, well, you're going to have to try and convince your customers they're not going to be losing a heck of a lot of it as soon as they drive out the showroom. And Porsche customers, particularly of late, have gotten used to cars that have rock solid residuals. In fact, at the top end, have made them money. But you can only do that if there's that demand or at least perception of it. So, you need to build a car that's very expensive, very desirable, and in limited enough quantity that people can't all get one, but with enough quantity that you make money out of it. That's difficult. I suspect what they do is just not really bother with the last one. Just make an awful lot more of them than they want to admit. But consumers aren't stupid.

[00:29:02]They'll realize what's going on. And all the while, what then happens is the entry- level stuff, the Boxster, the Cayman, the cars that we love, they're going to go. Cars that Porsche build that don't make them huge amounts of money, they'll just have to go and they'll say it's business. What Porsche really, I think, want to become is Ferrari. This I think is the only way they'll be able to see out of their situation. Start reducing numbers, start increasing the margin. That I think is what they want to do. But to me, that's not what Porsche is. Porsche for so long have enjoyed this reputation of being the attainable but still desirable, aspirational manufacturer. You for a lot of people, a Ferrari, a Lamborghini, McLaren, it's never going to happen. But I think for a lot of people, a Porsche could. That was always the magic of it.

[00:29:55]The Ferrari is the car you wanted. The Porsche was the car you actually bought.

[00:29:59]Porsche, I think, are well on the way already to decimating all of the goodwill they've built up over many, many years with customers who've worked really, really hard to buy one of their products. And if I were a lifelong Porsche customer right now, I'd feel really, really upset because if I were a 911 person, a Boxster Cayman person, and I wasn't a serial GT3 buyer, I wouldn't feel very well looked after by the company. I don't think they care about me at all. Okay, it's business, right?

[00:30:26]You could say that. But this is passion, too. Cars are a bit odd like that, aren't they? We feel really connected to the company, even if it doesn't care for us at all. But in this case, Porsche buyers, they're really interesting people. They're really nice people for the most part, other than when you see them out on the road driving their cars where for some reason they're all miserable bastards. But I think they're going to get really upset if what happens now is they go, "Yeah, do you know what? All those entry- level cars, not going to happen." And if you want proof of why this is a terrible, terrible idea, just look at Aston Martin. When they handed the V8 Vantage 20 years ago, it cost a little bit more than a 911 did, but they sold. And they sold very, very well cuz it was a good product, well positioned, that was desirable. Now, the new V8 Vantage, nobody wants it. I'm not entirely convinced it's a good car. I haven't driven one yet. Tried to get one from Aston Martin. It's not working out very well, but it's also a heck of a lot of money. Once you specify it, it's over £200,000.

[00:31:28]So, it's more than double the cost of an entry- level 911. Now, yes, I know it's got a lot more power, but that's besides the point. They're just not shifting.

[00:31:36]They had to up the price of the product, but ultimately there is a limit to what consumers are going to pay. And Porsche, I think, are already finding that. A few years ago, a GT3 was $120,000 car. Now, it's $180,000 car. That's a big jump.

[00:31:52]And not really much has happened to the car itself.

[00:31:55]Then, right on Q, just as I'm about to hit the publish button on this video, Audi goes and drops this. No, it's not the new R8. Apparently, instead they're calling it Novalari. Come production time, it might have a different name, but this is exactly the kind of car I'm talking about. It is clearly just a reskinned Torario with some tenuous connections to their new F1 team.

[00:32:21]Production is limited to 499 units and the price ratcheted up to about 600 grand for a car which would normally be 400 with a Lamborghini badge on it.

[00:32:33]Could this be VW group testing the waters for a Porsche equivalent? Or have Audi stolen the limelight from under Stoodgard's nose? Either way, this might prove to be a very significant car and also the perfect point to end today's video. Thanks to all of you for watching, and please tell me, what do you think? Can Porsche ever really be the company we remember, a purveyor of attainable yet still desirable sports cars, or is it already past that point?

[00:33:02]Can you really get away with selling Macan EV at 80 grand and supercars at 800? Please tell me and thanks for listening. Bye-bye.

[00:33:33]Heat. Heat.