Porsche/Ferrari: sports car brand cannot outpace the market cycle

Volkswagen brought affordable quality to the European car market. The German manufacturer listed its Porsche subsidiary last year to help it fund a similar outcome for VW’s electric vehicles. Tearaway full-year results on Monday revealed record profits for the sports-car maker following a successful public offering late last year. Yet, Porsche’s broader appeal may prevent it catching up with the valuation of supercar leader Ferrari.

So far the race has gone well. Sales in 2022 rose more than a tenth to €37.6bn on operating margins of 18 per cent, at the top end of guidance. The 911 maker promised profitability would rise to 20 per cent. Porsche’s stock price has climbed more than a third since listing in September.

Ferrari’s shares trade at almost 40 times forward earnings, double that of Porsche’s. That reflects Ferrari’s position in the luxury goods market where it follows a model of restricted supply and exorbitant pricing dependent upon inelastic demand from a wealthy clientele.

Porsche’s discount is justified. Firstly, it has strong links with parent VW. Oliver Blume is chief executive of both companies and an industrial co-operation agreement. The two companies share some assembly platforms. Ferrari prefers to go it alone, without big car tie-ups.

The German company does earn a steep earnings multiple valuation premium to mass market peers, on average about three times that of Germany’s other carmakers, including VW.

Porsche may only produce a fraction of the vehicles of its larger cousins but the 310,000 cars it made last year is still 24 times more than Ferrari made. A tiny fraction of those Porsches compete in the €200,000 price range in which Ferrari thrives. 

Indeed, Porsche mostly competes in premium segments against the likes of Mercedes, BMW and Jaguar Land Rover. That suggests its valuation should track closer to these rivals over time.

Robust, secular demand from ultra wealthy Ferrari collectors should continue to support its higher rating. A greater cyclicality for Porsche’s sales over time will make it difficult to close that gap.