Porsche's Production Crisis: Climate-Induced Supply Chain Disruption Impacts Profits and Share Price

Recent developments at Porsche AG have brought to light the tangible impacts of climate change on businesses and the broader economy. The luxury automaker is facing significant production challenges due to a shortage of aluminium parts because of recent flood events at key production sites in its supply chains. This underscores the growing reality that physical climate risks are not merely future concerns but present challenges that demand immediate attention.

Photo by Chris Gallagher on Unsplash

The Incident: Porsche's Supply Chain Disruption

Porsche, renowned for its high-performance luxury vehicles, recently reported significant delays in its supply chain for aluminium parts. The root cause? Severe flooding at a production facility of a crucial European supplier. This climate-induced event has disrupted the manufacturing of aluminium components used in all of Porsche's vehicles, leading to a bottleneck in the supply chain. As a result, Porsche's production schedules have been thrown off balance, directly impacting its profit margins and potentially forcing the company to halt production of some models.

The supplier declared a force majeure due to the flooding, which means they could not fulfil their contracts because of circumstances beyond their control. This has led to substantial delays in the delivery of aluminium parts needed for Porsche's vehicle manufacturing.

Financial Impact on Porsche

The financial repercussions for Porsche are notable. The company has had to revise its profit and sales forecasts for 2024. Initially, Porsche expected a return on sales of up to 17%, but this has now been adjusted to a maximum of 15%. This represents a reduction in anticipated revenue of $2 billion.

These revisions have had an immediate impact on Porsche's stock price. Following the announcement, Porsche AG shares fell by as much as 7.7% in Frankfurt, marking the steepest intraday drop since the company's IPO in September 2022. This decline highlights the market's sensitivity to supply chain disruptions and their potential long-term effects on company performance.

The supply shortage is expected to affect Porsche's production significantly. According to analysts at Bernstein, the flooding problems will prevent the production of at least 10,000 cars in the second half of 2024.

The Broader Implications: Climate Risks and Business Vulnerability