What's wrong with the CEO of Porsche

Flower gives electricity

Porsche is going electric, but does not want to lose emotionality or profitability in the process. If CEO Oliver Blume actually succeeds in the maneuver, it would be the next chapter in the carmaker's success story.

All the leaves are brown, and the sky is gray. I've been for a walk, on a winter’s day. "The music roars into the last corner of the packed hall, while a screen shows videos of sleek sports cars zooming along the California coast. "I'd be safe and warm, if I was in L. A. California Dreaming, on such a winter's day." A few moments later, a Porsche 911 drives onto the presentation area. It is now the eighth generation of the car type. “Of course, I've had several opportunities to drive the new 911. But this, at its official world premiere, was definitely the most emotional meter. ”Porsche CEO Oliver Blume knows what his brand is aiming at. Porsche stands for driving pleasure, is a “nice-to-have”, not a “must-have”. The matter of emotions is getting more complicated in the face of the greatest transformation in the automotive industry since Henry Ford. Because in times of autonomous driving, electromobility and sharing, emotionality takes a back seat. Flower is of little interest; the CEO cheerfully describes the 911 as a "pure driver's car".

Oliver Blume is the cover of our December 2018 issue.

Porsche highly profitable in an industry comparison

The presentation taking place on the day before the Auto Show in Los Angeles (L.A.) shows that Porsche does not want to compromise on emotions, CASE or not (CASE stands for the major future topics of the automotive industry: Connected, Autonomous, Shared, Electric). But the company from Zuffenhausen is not doing badly: In the first three quarters of 2018, Porsche increased its delivery figures by six percent compared to the same period of the previous year (to almost 66,000 cars). Sales rose by twelve percent (€ 19.1 billion) and the operating result by eleven percent (€ 3.3 billion). Porsche is particularly characterized by profitability; the operating margin at the end of 2018 was 17.4 percent. For comparison: BMW has nine percent, Porsche sister Audi around seven percent; Tesla and Bentley posted losses recently.

Nevertheless, Porsche also has to prepare for the future. The era of diesel vehicles has been over since the VW scandal at the latest, and gasoline-powered vehicles are also increasingly going out of fashion. On the one hand, electrification is jeopardizing the high margins of car manufacturers. On the other hand, the emotional occupation that is so important at Porsche in times of autonomous driving and the decreasing importance of ownership due to the sharing economy is difficult. None of this bodes well for Porsche. So why is Blume so relaxed when we meet him - armed with all these questions - in LA for an interview? What secret does the CEO have? And: is Blume the right man for such a maneuver?

“An electric vehicle can be just as emotional as a vehicle with a combustion engine,” says Blume. “The Taycan also has a great sound, it sounds authentically electric. In addition, the driver sits very low, feels the rolling of the tires, the pure road - and with it the fantastic acceleration of this vehicle. ”Electromobility will clearly be the dominant topic at Porsche in the next few years. Autonomous driving, on the other hand, will only be used selectively at Porsche in the foreseeable future.

Oliver Blume
... studied mechanical engineering at the Technical University of Braunschweig and later did his doctorate in Shanghai at the Institute for Vehicle Technology. He went through various positions in the Volkswagen Group, became Porsche Board Member in 2013 and Porsche CEO in 2015; Blume has also been a member of the Board of Management of the Volkswagen Group since 2018.

A German cult brand is renovating

In contrast, the Zuffenhausen-based company is investing on a large scale in e-mobility: By 2022, € 6 billion will flow into the electrification of its own portfolio (i.e. in plug-in hybrids and fully electric vehicles). Porsche also wants to be the first German car company to withdraw completely from the diesel sector. While it was never a love affair anyway - in 2017 the share of diesel vehicles for Porsche was twelve percent - petrol engines are a figurehead of the brand. The Porsche 911 will continue to be run as a combustion engine. The rest of the portfolio, on the other hand, will be electric: In addition to the fully electric Taycan planned for 2019, plug-in hybrids of the Cayenne and Panamera already exist. Not without success: the take rate for the Panamera models for plug-in hybrids is already over 60 percent. The next model of the Porsche Macan, due to hit the market in 2021, could also be rumored to be fully electric. However, Porsche does not want to confirm this. Blume rejects the idea that customers should pay more for the e-models. In any case, Porsche has to earn the significantly higher material costs in electromobility somehow, because the earnings contribution per car is - depending on the equipment - € 6,000 to € 10,000 lower than for cars with combustion engines.

However, Porsche and Co. do not have many alternatives. In order to achieve the global climate goals, which were defined, for example, within the framework of the Paris Climate Agreement (limitation of man-made global warming to well below two degrees Celsius compared to pre-industrial values, note), global decarbonization is required. In addition to electromobility, there would also be hydrogen or synthetic drives. Porsche deliberately relies on e-mobility. Blume: “In the wheel-to-wheel analysis, which focuses on the primary energy requirement per kilometer driven - from obtaining the fuel to moving the vehicle - the electric drive is around three times more efficient than hydrogen and six times more efficient than synthetic fuels . "

The share of electric cars (cars) in the total number of vehicles will increase massively. The curve includes fully electric vehicles and plug-in hybrids and is based on forecasts. (Source: Bloomberg)

The legislators are also steering fully towards electrification. In Norway, 100 percent of all new cars sold should be electric from 2025. India, France and the UK are all aiming for the same goal by 2030, 2040 and 2050, respectively. Germany and China have not yet given a specific year. Nevertheless, Blume sees the world differently, despite its own electrification offensive: “Our product strategy for the next ten years is based on a triad of drive types: We are further developing our gasoline engines and making them even more efficient. We also rely on high-performance plug-in hybrids and from 2019 Porsche will also be offering purely electrically powered sports cars. "

Rapid rise in the VW group

Oliver Blume is a technician, studied mechanical engineering in Braunschweig and started an international trainee program at Audi in 1994 at the age of 26. He rose quickly, and in 2001 became "Executive Assistant Production" at Audi. In the same year, Blume did his doctorate at the Tongji University in Shanghai at the Institute for Vehicle Technology. Blume worked on his dissertation, which dealt with planning instruments for project planning in production, for five years - part-time. This was followed by positions at Seat and Volkswagen; In 2013, Blume became a member of the board of directors at Volkswagen subsidiary Porsche, and in 2015 he replaced Matthias Müller there as CEO. In 2018, the new VW boss Herbert Diess appointed him to the VW board, where Blume is responsible for production, design, motorsport and the environment.

Blume played football for a long time and is considered a team player. He himself says: “One of the tasks of a CEO is to make tough decisions every now and then and to enforce them. However, that doesn't mean you have to be ruthless or loud. That's not me. I want to cross the finish line together with the team, not alone. ”That is worth mentioning, as the Volkswagen universe has long been shaped by managers with an authoritarian leadership style. Blume, on the other hand, goes on two terms with his employees and applauds his fellow board members after the successful presentation of the new 911 model. The fact that he is repeatedly said to be lacking the last bit of hardness leaves Blume rather cold. However, the Lower Saxony confirms the descriptions made in media reports “structured, determined, ambitious”. In turn, Blume does not see the attribution of “narrow-mindedness” by the Süddeutsche Zeitung - and again emphasizes his emotionality. “Porsche is a highly emotional brand with passionate fans and colleagues. I am very proud of that. And it is very important to me that we carry this Porsche feeling into the future. ”For many observers, the 50-year-old Blume is a promising candidate for the CEO position at Volkswagen - not right away, but at some point. Someone who understands the technical side and at the same time cultivates a collaborative, modern management style. In addition, Blume has a good standing with the powerful Piëch and Porsche owner families. Whether he actually has the right profile for the highest position in Wolfsburg remains to be seen - as well as the question of whether the manager can not only use money correctly, but also save it.

Cost efficiency instead of cost savings

Because Porsche's investments in electromobility - the six billion euros already mentioned - can be financed through two channels: higher sales or lower costs. And while Porsche definitely wants to open up new sales channels, the focus is currently on cost efficiency. The “results program” that the Zuffenhausen-based company is planning should save an additional six billion euros in earnings by 2025. With annual sales of most recently € 23.5 billion, that's a decent chunk. The program becomes necessary due to the unwillingness to pass the costs on to customers. Blume thinks the timing is appropriate: “We are approaching this program from a position of strength.” These are cumulative values ​​over the entire duration of the program. This is important insofar as the media reports that reported annual savings of € 750 million are incorrect, according to Blume. This is because major earnings effects, e.g. due to product decisions, will only have a monetary impact in later phases of the cycle.

Porsche deliveries (Q1 to Q3 - comparison 2017/2018; source: Porsche)

In the context of the program, Blume wants to “put all of the company's processes to the test”. Products should be optimized, complexity reduced, components standardized, processes digitized (hardware prototypes should be deleted and instead manufactured digitally). In addition, “at one point or another” synergies within the VW group are to be used, for example in the context of the joint production of the Porsche Cayenne and Audi Q7 in the Volkswagen plant in Bratislava or the joint PPE (Premium Platform Electric) platform, the Porsche developed and used with Audi. “From 2025 onwards, we want to contribute € 2 billion a year to our earnings. We are sticking to our strategic goal of a return on sales of at least 15 percent. "

Despite all the savings targets, there should be no downsizing. "On the contrary, we are hiring another 1,500 people for the Taycan and Taycan derivatives." Core competencies, such as the entire production line, should not only be retained in the company, but should also be strengthened. "Growing without growing" is what Blume calls it. In addition, there are new sales processes and markets. But sales can also come from elsewhere: "These can also be new, digital business areas."

Ride sharing as a further mainstay

For large automakers, our platform is a way of reaching groups of buyers that they would otherwise not reach, ”says Andre Haddad as the CEO of Turo leans back in his seat. The “Airbnb for Cars” lets users rent out their vehicles - often classics - so that interested parties can use them for a certain period of time.

In October, Turo and Porsche started an exclusive partnership, “Porsche Host”. In this context, Porsche wants to reach younger groups of customers, because the vast majority of Turos users are between 18 and 44 years old, while typical Porsche buyers are in their mid-50s “Porsche Passport” subscription service, plus cooperation with ride sharing services such as Didi in Shanghai or Gett in London. Porsche also knows that digital platforms are gaining in relevance. Haddad describes it as follows: "The next phase of mobility - Mobility 2.0 - will no longer be dominated by one's own car, but rather by the smartphone."

Porsche is also eagerly developing applications, but has some catching up to do in this area in particular. These sharing projects are not (yet) financially viable. Rather, the younger tenants should also become Porsche buyers. In any case, Blume is optimistic: "We have a lot of good ideas and are confident of generating a double-digit share of our sales with digital products by 2025."

Like the rest of the industry, Porsche faces groundbreaking times. It remains to be seen whether Blume can maintain the emotional component and keep the margin at 15 percent in the long term. Massive savings without downsizing and a fundamentally changed product range will also demand all managerial qualities from Blume. However, if he succeeds and Porsche continues to be the VW Group's cash cow, the way to the top would be clear for Blume. The new VW boss Herbert Diess, with whom Blume claims to work “excellently”, has a contract until 2023. And Diess has already indicated that he is not particularly keen on a contract extension. California dreamin '.

This article appeared in our December 2018 issue of “Sharing Economy”.

Klaus Fiala,
Editor-in-chief