BREAKINGVIEWS-VW’s Porsche woes make case for leadership shakeup

By Neil Unmack

LONDON, March 11 (Reuters Breakingviews) - Volkswagen’s VOWG.DE problems with Porsche are showing the need for a second driver. The 60-billion-euro German carmaker expects faster growth and a robust operating margin in 2025. Its CEO Oliver Blume is getting a boost from new models and cost cuts. Yet the sports car marque, which VW controls and Blume also runs, is stalling.

The boss of two-and-a-half years is hoping that 2025 may be the start of a turnaround for the Wolfsburg-based group. VW has suffered from stagnant sales, a slow and expensive electric-vehicle (EV) transition, and a loss of market share in China. One big concern – European carbon fines which could have clobbered VW to the tune of 1.5 billion euros – have at least been deferred by up to three years.

Encouragingly, VW looks increasingly likely to hit those European carbon targets when they eventually bite. This year it is unveiling a new 25,000-euro battery vehicle, and is lining up a cheaper one, for just 20,000 euros. Its flagship EV, the pricier ID 7, has received good reviews and looks well-placed to take business from Tesla TSLA.O as some Europeans steer clear of Elon Musk’s cars.

Reassuringly, while EVs are typically less profitable than combustion-engine cars, VW still expects its operating margin to be between 5.5% and 6.5% this year, versus 5.9% last year. And a deal to cut plants and trim its German labour force by up to 35,000 workers should over time push up weak profitability at its eponymous mass-market brand.

All of which helps explain why VW’s shares have returned some 22% this year, assuming reinvested dividends, beating rivals like Stellantis STLAM.MI and Renault RENA.PA. It also wiped the floor with Porsche P911_p.DE, the sports car business in which VW listed a minority stake in 2022 while retaining a 75% interest. Blume also runs that company – an unusual situation which arguably clashes with governance best-practice.

The 53-billion-euro sports car maker has suffered from falling sales in China and a costly pivot back towards combustion-engine cars. Porsche’s operating margin, which hit 18% in 2023, will be just 10%-12% this year, it reckons. UBS analysts pencil in an equally depressing 11.7% in 2026. To cap the role reversal, in February VW’s market value eclipsed that of Porsche, whereas the spun off group has typically been worth more than its parent since the listing.

Porsche, which reports full-year results on Wednesday, is investing, cutting costs and has recently shaken up its management. Yet the turnaround is likely to be lengthy and could be complicated further by a tariff war: Porsche’s biggest market is the United States, where it typically exports its cars. That reinforces the need for having its own CEO, rather than sticking with Blume. For both VW and Porsche, a governance shakeup looks better late than never.

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CONTEXT NEWS

Volkswagen on March 11 reported revenue of 325 billion euros for 2024, a 1% year-on-year increase, and operating profit of 19 billion euros – down 15% from 2023 and equivalent to a 5.9% margin.

For 2025, the group run by Oliver Blume is forecasting sales growth of up to 5%, and an operating margin of between 5.5% and 6.5%.