Market Analysis: Kering, BMW & Porsche

Kering: Decreasing interest in Gucci in both China and the US due to lack of a unique angle in new products; Gucci's sales mainly consist of existing products can boost profit margin but lead to heavy discounts and putting pressure on margin now. BMW: Pricing pressure will continue due to increasing competition from Tesla and Chinese players; Questionable on the effectiveness of EU's anti-subsidy probe into Chinese EV imports. Porsche: Slower sales in China due to lack of differentiation in EV;K1 will be a big deal in the US and China, 718 is a big question; They need more control on batteries and value chain to keep costs down.

After interviewing a number of executives in the luxury space, Yanmei Tang, Analyst at Third Bridge comments on Kering, informed by the insights from industry experts.

“There's a decreasing interest in Gucci in both China and the US. Gucci heavily relies on attracting new Asian customers who are very sensitive to brand heat. Our experts say the new Gucci products introduced so far lack a unique angle and are too similar to past seasons. This makes it unlikely for them to attract renewed interest from customers.

“Our experts say whenever Gucci attempted to emulate the LV strategy, positioning themselves as super high-end with products emphasizing craftsmanship or seasonality without a strong fashion element, the strategy failed.

“Gucci's sales mainly consist of about 60% of existing products rather than new collections. While this strategy boosts profit margins, it's leading to heavy discounts and putting pressure on margins now.”

In the automotive space Orwa Mohamad, Analyst at Third Bridge comments on BMW.

“Pricing pressure will continue in 2024 due to increasing competition from EVs in Tesla and other Chinese automakers, which can cut prices from a strong position on product costs.

“Our experts say that introducing the Neue Klasse platform may give BMW a chance to achieve a higher margin. However, there are significant uncertainties due to slower-than-expected EV adoption and whether customers will like the cars designed on the new platform.

“Our experts are sceptical about whether BMW can sell 50% of its fleet as BEVs. The European infrastructure is not capable of charging such a huge number of EVs in the foreseeable future.

“Our experts doubt the effectiveness of the EU's anti-subsidy probe into Chinese EV imports, citing challenges in transparency over subsidies as well as lower wages and pricing in China's market. China's dominance in rare earths for electric motors, controlling about 90% of global resources, could give it significant pricing influence, posing challenges for the German auto industry."

On Porsche, Orwa Mohamad writes: “Porsche is facing slower sales in China because Chinese buyers don't see much difference between local and foreign EV brands. European cars are falling behind in terms of fancy tech features inside. Porsche doesn't want to just focus on maximum power output, they need to do better marketing explaining why their cars are special, like their handling and control.”#

“Our experts think Porsche's new top-of-the-line model, the K1, will be a big deal in the US and China, but not so much in Europe. They're not sure how well the 718 will do because people mostly buy it for emotional reasons. It will depend on the car's performance as an EV.

“Porsche wants to keep making the classic 911 with a regular engine, using things like e-fuels or hydrogen if it's allowed.

As electric cars proliferate, Porsche needs to start making its own batteries and control more of the value chain to keep costs down and maintain their margins of 15%+. While Porsche can rely on VW, sports cars have different requirements from mass market VW brands