Luxury car legend facing headwinds! Porsche cuts operating costs to meet the cold demand wave.

The new CEO of leading German luxury carmaker Porsche Michael Leiters plans to streamline the company's long-standing complex organizational structure and introduce models positioned above the 911 to further boost profits. Porsche's latest move is aimed at addressing challenges such as U.S. government tariffs, a significant decline in sales in the Chinese market, and the costly strategic shift towards electric vehicles. However, the luxury carmaker stated on Wednesday that overall sales are expected to decrease slightly this year, to a maximum of 36 billion euros (approximately 41.9 billion U.S. dollars). Leiters stated that Porsche now needs to make "difficult decisions, which are necessary and crucial for addressing our overgrown cost structure." "We must improve profitability and cash flow generation." The new executive, who took over as CEO of Porsche in January, is seeking to revitalize the performance of the luxury carmaker after a challenging year. The company was removed from the German stock market benchmark DAX index in 2025, after four performance guidance revisions, which also weighed on the financial fundamentals of Porsche's parent company Volkswagen Group. The parent company warned on Tuesday that further cost reductions are still needed to cope with intensifying competition. Porsche's management expects the overall operating profit margin this year to reach 5.5% to 7.5%, an improvement from 1.1% last year. The company's performance was significantly impacted last year by U.S. tariffs and around 2.4 billion euros in charges related to the shift towards electric vehicles. The company previously stated that it expects a significant improvement in 2026 after experiencing a dark period last year. To achieve this goal, Porsche announced on Wednesday that it will actively reduce its management structure and organizational levels to cut high operating costs, and reduce investments in the long term. The luxury carmaker is considering launching models positioned above its two-door sports cars and Cayenne SUVs, as well as certain derivative versions, to support profit margins. Leiters is expected to engage in active discussions with union leaders on new cost-saving measures. The company has already agreed to cut around 3,900 positions by the end of this decade, including 2,000 temporary workers. Even luxury car leaders like Porsche are struggling After facing increased competition in the domestic Chinese market, Porsche's sales in China dropped significantly by 26% last year, highlighting weak demand in the Asian market amid economic growth uncertainties. Porsche is currently reducing its dealer network in the Chinese market and striving to provide car software that better suits local consumer preferences. Another challenge Porsche faces is its presence in the U.S. market. The United States is its largest single luxury car market, and all cars sold locally rely on imports. The radical tariffs imposed by U.S. President Donald Trump cost Porsche about 700 million euros by 2025. The company's rare challenges in recent years have forced it to take more aggressive cost-cutting measures, including shelving or delaying some electric car projects and increasing more popular models with internal combustion engines and hybrid systems. The automaker has also changed most of the members of its board of directors. Furthermore, Porsche proposed to pay a dividend of 1.00 euros per ordinary share and 1.01 euros per preference share, both less than half of the previous year's dividend level. Undoubtedly, the cycle of profit compression in the global automotive industry has overwhelmed luxury car benchmarks like Porsche, which analysts have long viewed as having a "high ASP, high gross profit, and strong brand moat". The most obvious signal is not simply "slower sales", but the clear failure of its operating leverage: Porsche's revenue in 2025 dropped to 36.27 billion euros, a 9.5% year-on-year decline, delivery volume fell by 10.1%, and operating profit plummeted from 5.64 billion euros to 413 million euros, with an operating profit margin collapsing from 14.1% to 1.1%. This indicates that the problem has shifted from demand fluctuations to pressure on the profit model. The logic that the global luxury car industry has relied on brand premiums to hedge against cycles has gradually become ineffective. Porsche is not only under pressure from a single factor this time but is facing triple squeeze: weak demand for high-end cars in China, with local new energy competitors being more aggressive in intelligence, software experience, and electric product definition; direct erosion of profits from U.S. tariffs; and a previous misjudgment of the electric strategy leading to a return to doubling down on more "liquidable" fuel and hybrid models. For a luxury car company like Porsche known for its product portfolio, brand scarcity, and high returns, this "strategic swingback" and streamlined structure itself indicates that external conditions have forced it from offense to defense. When sales, regional structure, and powertrain modules are out of balance, even with high unit prices, the company will be burdened by research and development, platforms, channels, and organizational levels. Therefore, the new CEO Michael Leiters emphasizes "simplifying the structure" and focuses on reducing management levels, cutting costs, reassessing the product portfolio, and developing high-profit products positioned above the current core models.