Refocusing Battery Activities And Supply Chain Management Will Advance Electromobility

Key Takeaways

• Strategic realignment in battery and supply chain management aims to optimize margins and profitability amid geopolitical and tariff challenges.
  
• Focus on innovation, personalization, and core model strength supports higher sales prices, brand strength, and potential revenue rebound.
  
• Strategic expenses, tariffs, competition, and supply chain issues adversely impact profits, revenue, and cash flow due to elevated costs and geopolitical challenges.

Catalysts

Engages in automotive and financial services business in Germany, Europe, North America, China, and internationally.

• Porsche's strategic realignment of battery activities, including the decision not to independently expand high-performance battery production, is poised to optimize long-term returns on investment in electromobility, potentially improving future net margins by reducing unrewarded capital expenditures.
  
• The ongoing innovation and individualization strategy, emphasizing exclusive product offerings and custom personalizations, is likely to support higher average sales prices and revenue growth, despite declining unit sales.
  
• Efforts to optimize the supply chain and mitigate challenges through a worldwide value-oriented supply management, particularly in China, aim to enhance resilience and stabilize automotive net cash flow margins despite geopolitical disturbances.
  
• Potential U.S. tariff negotiations, along with differentiated pricing strategies, are intended to protect U.S. market profitability, potentially stabilizing operating margins once uncertainties are resolved and strategic pricing adjustments are made.
  
• The strategic focus on bolstering core models, such as the 911 range, coupled with emotional combustion engine vehicles, is expected to sustain brand strength and could contribute to a rebound in revenue and net margins as market conditions stabilize.

Dr. Ing. h.c. F. Porsche Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dr. Ing. h.c. F. Porsche's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 9.3% in 3 years time.
• Analysts expect earnings to reach €3.9 billion (and earnings per share of €4.04) by about May 2028, up from €3.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €4.7 billion in earnings, and the most bearish expecting €2.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from 12.6x today. This future PE is greater than the current PE for the DE Auto industry at 5.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.75%, as per the Simply Wall St company report.

Dr. Ing. h.c. F. Porsche Future Earnings Per Share Growth

Risks

• Slower ramp-up of electromobility and strategic realignment of battery activities lead to strategic expenses that impact net profits, with significant write-offs affecting operating margins.
  
• Introduction of U.S. import tariffs presents potential ongoing costs, affecting revenue and contributing to uncertainty in projected earnings.
  
• Decreasing demand and fierce competition in China, especially in the luxury electric segment, may result in further sales declines, impacting revenue and market share.
  
• Elevated R&D costs due to increased D&A and lower capitalization rates place pressure on net margins, affecting overall profitability.
  
• Supply chain challenges and increased supplier costs, driven by geopolitical conditions, can negatively impact cash flows and net cash flow margins.

Valuation

• The analysts have a consensus price target of €55.311 for Dr. Ing. h.c. F. Porsche based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €75.0, and the most bearish reporting a price target of just €38.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €42.1 billion, earnings will come to €3.9 billion, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of €44.09, the analyst price target of €55.31 is 20.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.