A year ago we did a newsletter on Porsche and their North American Passport Program that got younger drivers into their cars.  At that time Porsche was the envy of the automotive world commanding premium prices and having a coveted waitlist for their cars.  What a difference a year makes!  Today Porsche’s operating margins have plummeted from 14% to essentially zero (0.2%).  Operating profits have shrunk from 4 billion euros to 40 million.  Gross margins are half that of 2024 as are earnings margins.  It seems that just when everything was firing on all cylinders Porsche blew their engine.   What happened and are there any lessons we can learn from their meltdown?

Porsche’s tailspin was really a series of disasters that all came at once.  First China.  China had become Porsche’s second-largest market but in 2025 deliveries collapsed by almost 30%.  Although the market collapsed quickly the early warning signs were already there. Sales had softened in 2024 as regional EV competition started gobbling up market share with EVs priced at less than half the cost of a Porsche.   Incredibly, Porsche’s response was to lower the prices of its luxury cars.

At the same time as their Chinese market position was collapsing, Porsche went all-in on premium EVs. They invested heavily in a company called Cellforce known for its high-performance battery technology.   They also positioned the Taycan as the electric Porsche 911.  Unfortunately, sales of the Taycan plummeted a whopping 52% in 2025 necessitating Porsche’s write off of 2.7 billion Euros in EV development costs and their pivot back to hybrids and combustion engines.

Adding pain to the misery that was 2025 came in August of that year.   The USA imposed a 15% tariff on European auto imports.  Unable to raise prices or to shift production to the USA, Porsche was forced to absorb €500-700 million in costs.

The fourth debacle was actually self-inflicted and will likely affect Porsche for the long term.   In order to preserve cash flow, Porsche cut R&D spending at a time when the industry is in transition.

What lessons can we learn from Porsche’s troubles?

1. Luxury brands live and die by their pricing power:  When demand in China softened, Porsche lowered prices which is the equivalent to admitting your brand isn’t worth it.   When Porsche flooded the market with discounted cars, they destroyed their pricing power which only accelerated their death spiral. Premium brands maintain margins by limiting supply, protecting the brand scarcity, and accepting lower volumes.
2. Timing is everything in market transitions:   Porsche was working on the premise that the transition to EV vehicles is “inevitable”, but they moved too quickly.  Customers only care about what they want today – not tomorrow. Porsche assumed luxury buyers were ready to buy electric. They weren’t.
3. Geopolitical risk must be managed:  Businesses that depend on free trade need to hedge with geographic diversification otherwise you’re always one tariff away from a crisis.
4. Cutting R&D to preserve cash flow is a desperate move unlikely to succeed long term:  It might seem prudent at the time however when an industry is in transition (as is the auto industry) borrowing from tomorrow to survive today is not a strategy.   It’s imperative to protect long term investments even during downturns.

If you’re running a business and think “this won’t happen to us,” you’re already making Porsche’s first mistake. Porsche’s collapse wasn’t caused by one bad decision. It was caused by multiple reasonable-sounding judgements that compounded into disaster.  A strategy is always situation specific, and it bends and changes as markets evolve.  This clearly wasn’t the case here.  Porsche’s knee jerk decisions in response to market changes and tariffs indicate that the strategy was not well formed and certainly not pressure tested.

What shape is your strategy in?  Can your strategy withstand a market meltdown?

1.   Forbes Oct 13, 2025  Is Porsche Sinking? Layoffs, Tariffs And Other Issues Abound …By Josh Max,