New Delhi

Porsche AG, the renowned German luxury sports car manufacturer, has been compelled to revise its sales and profit projections for the year due to an unexpected disruption in its aluminium alloy supply chain. This announcement, made on Tuesday, led to a significant 4 per cent drop in the company's stock price, positioning it at the bottom of Frankfurt's prestigious blue-chip index.

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The root cause of this supply chain disruption has been attributed to severe flooding at a European contractor's facility, though Porsche has not disclosed the specific location or identity of this supplier. The impact of this event is far-reaching, affecting the production of Porsche's entire model range and potentially leading to temporary shutdowns for one or more vehicle series.

In a formal communication, Porsche revealed that the affected supplier had invoked force majeure in writing. This legal provision allows a party to be relieved of its contractual obligations due to extraordinary circumstances beyond its control, such as natural disasters or other unforeseen events.

Novelis, a subsidiary of Hindalco Industries and a key aluminium supplier to a joint venture co-owned by Porsche, confirmed that it had informed its automotive customers of a force majeure event. This event necessitated the closure of one of its plants in late June. While the aluminium shortage has also impacted other German premium automakers like BMW and Mercedes-Benz, these companies have managed to secure alternative suppliers, mitigating the impact on their operations.

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Constellium, a U.S.-listed aluminium manufacturer headquartered in France, clarified that it does not supply Porsche from its Swiss facility. However, the company disclosed in its earnings statement that it remains uncertain about when production will resume at its Valais facilities, which were affected by flooding in late June.

When approached for comment, Norsk Hydro CEO Eivind Kallevik declined to provide information on whether the Norwegian aluminium producer could increase its output to address the shortfall or if it had received inquiries from customers seeking additional product. It's worth noting that all three of these companies list Porsche or its affiliated firms among their clientele.

The aluminium alloy shortage is particularly problematic for Porsche because aluminium components are integral to all of its vehicle series. This reliance on a single supplier has exposed the company to significant risk. This latest challenge adds to a series of issues Porsche has faced in recent months, including software problems, product delays, supply chain disruptions, and declining sales in the crucial Chinese market.

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Financial analyst Stephen Reitman of Bernstein Research described the situation dramatically, stating, "It's been a biblical flood that's wiped away the gains from the IPO." This comment refers to Porsche's initial public offering in September 2022, which saw the company's shares close at 82.50 euros in Germany's second-largest market debut. In stark contrast, the shares were trading at 69.66 euros on Tuesday, representing a 4.1 per cent decline.

Bernstein analysts have estimated that the flooding at the Swiss supplier could result in a production loss of between 10,000 and 17,400 vehicles in the second half of 2024. At the upper end of this range, this figure represents over 11 per cent of Porsche's deliveries in the first half of the year.

In response to these developments, Porsche AG has adjusted its sales forecast to between 39 billion and 40 billion euros ( USD 44 billion), down from its previous projection of 40 billion to 42 billion euros. The company has acknowledged that the delays in production and vehicle delivery are unlikely to be fully compensated for during the remainder of the year.

Porsche has revised its return on sales expectation to between 14 per cent and 15 per cent for the year, a decrease from its earlier projection of 15 per cent to 17 per cent. The company is scheduled to report its first-half results on Wednesday.

Adding to Porsche's challenges is a slowdown in demand from the Chinese market, which has contributed to a 7 per cent decline in global deliveries during the first half of the year. The company is also grappling with disappointing electric vehicle sales, prompting it to scale back its EV ambitions on Monday, citing evolving customer preferences and industry trends.

Despite these setbacks for Porsche AG, Porsche SE, the holding company controlled by the Porsche and Piech families that oversees Volkswagen and holds a blocking minority in Porsche AG, has maintained its earnings forecast for 2024.