Porsche Warns on Profit as Supply Chain Hit Slows Production

(Bloomberg) — Porsche AG shares fell the most on record after the luxury-car maker cut its outlook for the year, saying a shortage of aluminum parts could force it to stop production of some models.

The German manufacturer now expects a return on sales of as much as 15%, down from a high of 17%. The Volkswagen AG-controlled company, which is struggling with weak demand in China, also reduced its forecast for revenue and the proportion of electric-vehicle sales.

The supply shortage is the result of flooding at a production facility of an important European supplier, Porsche said Tuesday, without disclosing the company’s name. The issue has affected aluminum components that are used in all of the brand’s vehicles, and output could be affected by several weeks. Porsche shares declined as much as 7.7% in Frankfurt, the steepest intraday drop since they started trading in September 2022.

Porsche “will certainly be closely questioned over its cluster risk management that has left it so vulnerable to one critical supplier,” Bernstein analysts led by Stephen Reitman said in a note. The company told the analysts that the problems will prevent production of at least 10,000 cars in the second half.

The supplier declared force majeure, a measure companies cite when events outside of their control prevent them from doing business. Several European countries, including Switzerland, have experienced significant flooding in recent weeks. The issues suggest other carmakers could also be affected, Morgan Stanley analyst Javier Martinez de Olcoz Cerdan said in a note.

Porsche’s stock is down around 14% this year. Volkswagen dropped as much as 2.8% on Tuesday.

Audi, another premium brand Volkswagen owns, said flooding had led to a shortage of special aluminum alloys at multiple suppliers, but that the shortfalls weren’t directly impacting production. “We are in close contact with our suppliers and are working to avoid any supply bottlenecks,” an Audi spokesperson said.

What Bloomberg Intelligence Says:

Porsche’s 2024 outlook warning on flooding at a key aluminum supplier needed for lightweigthing, which may result in 10,000 units of lost production, doesn’t shift our 2025 outlook or 2Q’s sequential margin improvement. Ebit margin guidance for 2024 is now 14-15% (from 15-17%), which will likely see a 10% cut to consensus Ebit. Though we have always viewed 2024 as a transition year given four new model launches, this is another hit to sentiment amid weak Chinese demand down 41% in 2Q.

— Michael Dean, BI automotive analyst

Porsche’s deliveries declined in the first half after consumers shied away from big-ticket purchases in China, where a protracted real estate crisis is putting off luxury buyers. The slowdown in China is affecting demand for a broad range of premium items including watches and designer clothing. Porsche also is facing high costs because of several model changeovers, billing next year as a turnaround point.

Novelis Inc., an aluminum provider owned by India’s Hindalco Industries Ltd., said it declared a “force majeure event” after recent flooding at a plant in Sierre, Switzerland.

“With our plant shut down due to the flooding, our ability to fully deliver to our automotive customers in Europe has been impacted,” the company said in an emailed statement.

Aluminum parts maker Constellium SE also suspended operations at its Sierre and Chippis plants earlier this month after severe flooding. The manufacturer’s customers include Porsche, Volkswagen, Stellantis, Mercedes-Benz, Ford and BMW, according to a regulatory filing. 

Constellium doesn’t supply Porsche from its Swiss operations, the company said in an emailed statement. Its shares fell as much as 9.1% on Tuesday after Constellium said it’s suspending guidance for 2024 due to the flooding.

Volkswagen and Mercedes-Benz declined to comment. BMW said it’s not affected by the supply issues.

Porsche’s downgrade follows the manufacturer on Monday walking back its EV sales ambitions over lower-than-expected momentum for plug-in models in Europe and in China.

The carmaker will release half-yearly results on July 24.

–With assistance from Levin Stamm.

(Updates with Novelis, Constellium statements from ninth paragraph)

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