The moment of truth is near for Porsche. When the sports car maker reveals its preliminary financial results for last year on Tuesday, they are expected to be disappointing. The premium brand from Stuttgart-Zuffenhausen is likely to have seen its operating group earnings drop to a range of 5.5 billion to 6 billion euros, which would represent a decline to the level of 2021. At that time, the company, which is majority owned by Volkswagen, generated 5.3 billion euros.

A preview of the weak financial performance for 2024 was already provided by the delivery numbers released by Porsche. These dropped by 3% worldwide to exactly 310,718 vehicles. The main reason for this decline was the drop in sales in China, where Porsche’s sales fell by 28% to 56,887 units.

For CEO Oliver Blume, who has led the Wolfsburg-based parent company since September 2022, this represents a significant setback in his efforts to transition the still most profitable unit within the vast Volkswagen empire into the age of electromobility. In 2024, Porsche veered off track. In 2025, Blume must prove that he is on the right path with his new battery-powered models, to regain lost ground.

This will not be an easy task. This year will determine whether Porsche can regain its momentum in China with a refreshed product portfolio, or face failure. Blume is under pressure to meet expectations. The ongoing economic downturn in China and increasing competition from local suppliers will make it difficult for management to fulfil their promises. Porsche’s board promotes a „value-oriented sales“ strategy as the key to success.

This indicates that the sports car manufacturer is steering clear of the aggressive discounting wars in China. With this strategy, Porsche is accepting a potential loss of market share in the world’s second-largest economy. Blume is not willing to maintain or even expand Porsche's position at the expense of profitability. His fear of brand dilution runs deep.

His approach is frustrating Porsche dealers in China, who would prefer to boost sales through price reductions. This conflict of interest dampens morale. The relationship between the German OEM and local dealers is strained, further dampening the ambitious plans of Porsche’s management.

Clearly, Porsche's approach in China is no longer working, where the idea that luxury goods become more desirable as prices rise is proving to be false. This is evidenced by the sharply declining demand, which Blume attributes to model changes at Porsche. However, this is only half the truth. The fact is that as the supply in the market grows due to emerging Chinese manufacturers, demand is naturally shifting or becoming spread across multiple players.

Porsche, like other German premium and volume brands, is now feeling the effects of this structural change. BMW, Mercedes-Benz, and the leaders at Volkswagen can attest to this.

This is also Blume's challenge. Investors will be closely watching the Porsche financial report in March to see the revenue and earnings forecast for 2025 from the CEO and his team. Among analysts, pessimism is growing. Goldman Sachs recently lowered its price target for the stock significantly, from 86 to 69 euros. The analysts at the US investment bank expect 2024 to be a challenging year for the European automotive industry in general and for Porsche in particular. Investor scepticism is reflected in the stock price. The share price of the Dax-listed company, which went public at 82.50 euros in September 2022, is currently trading below 60 euros. Since the peak in mid-2023 (120 euros), the stock has lost about half of its value.

The doubts are also fueled by the deficiencies in corporate governance within the VW conglomerate. The longer the profitability crises at VW and Porsche persist, the more the weaknesses of this dual role become apparent, a role that is still fully supported by the Porsche and Piëch families. Blume risks becoming overwhelmed by the increasing responsibilities between Wolfsburg and Stuttgart during these challenging times. This situation ultimately impacts the entire group. Such a complex dual role is more suited to times of prosperity, not difficult periods.

The largest individual shareholder of VW, the holding company Porsche SE (also the second-largest individual shareholder of Porsche AG), which represents the two family branches, seems resistant to addressing the growing corporate governance deficiencies. The anticipated annual loss in the billions for Porsche SE, due to write-downs on its two key strategic holdings, does not appear to have prompted a shift in thinking on this issue. Given the increasing pressure to act, valuable time is being lost in addressing structural shortcomings at the top leadership level.