The goal is for so-called digital services to generate at least 10 percent of annual revenue in the medium term, the Stuttgart, Germany-based luxury division of Volkswagen AGsaid Friday. That effectively means that a $89,400 911 sports car would generate at least $9,000 from offerings like activating special lighting systems to help navigate mountain roads, Bloomberg reported.
“Customer expectations are changing,” Chief Financial Officer Lutz Meschke said at a press conference. “They are demanding personalized services that are tailored to them.”
Porsche founded a unit in Ludwigsburg, Germany, last year focused on creating digital services for cars like the 911, four-door Panamera coupe and Cayenne sport utility vehicle. It also opened a technology lab for developers in Berlin and acquired stakes in venture-capital fund e.ventures and parking-service provider Evopark. The carmaker already offers the Porsche Connect mobile application, with features including navigation, real-time traffic data and remote vehicle monitoring.
“While the focus of our research and development investment has until now been almost exclusively on developing vehicles, we will spend significantly more on creating new digital services in the future,” Meschke said near the sports-car maker’s headquarters in Stuttgart. The company will be “forced” to generate much more in sales from the services as the industry adapts to new technology, including autonomous driving.
Record 2016
Porsche’s success is vital for Volkswagen to stem the financial fallout of its diesel-emissions scandal and generate the funds needed for the industry’s shift to an era of electric robo-taxis. The brand posted record earnings, revenue and deliveries in 2016, and operating profit amounted to 17.4 percent of sales, among the highest in the auto industry.
Porsche forecast Friday that vehicle sales and revenue will rise slightly in 2017. As long as currencies remain stable, operating profit will about match the last year’s figure as spending on new technology holds back earnings growth.
As part of a push to expand its model range, the brand unveiled a station wagon version of the updated Panamera this month, along with the GT3 racing variant of the 911. It’s also considering coming out with a coupe-like version of the Cayenne. Development of its first all-electric sports car is “proceeding fully in line” with the planned rollout in 2019, Chief Executive Officer Oliver Blume told journalists.
To free up funds for new technology, Porsche plans to cut production costs per vehicle by 15 percent, Blume said. Through closer cooperation with Volkswagen’s Bentley and Bugatti luxury divisions, the automaker expects to reap cost savings of 100 million euros ($107 million) a year as of 2018. Porsche’s factory in Leipzig, Germany, is preparing to build chassis for Bentley’s Continental model, which shares underpinnings with the Panamera, and could add production for other models as well.
Hiring Plans
The new division in Ludwigsburg currently has about 100 employees, and that will rise to as many as 500 as it adds outlets in Asia, Israel and Silicon Valley, Meschke said. Digital products will account for a “significant double-digit” percentage of Porsche’s revenue, he said, declining to specify a figure. In January, the CFO estimated the operations could generate 30 percent of sales in seven years. They’re likely to account for 10 percent of Porsche’s research and development spending over time, he said Friday.
“It is not always necessary to have the resources ourselves” to develop the services, Meschke said. “In this respect, it is possible we will invest in startups or established external partners, or seek to cooperate with them.”