Porsche on Tuesday held a ceremony to mark the start of production of its all-new Macan SUV. The Macan will be made at a freshly expanded high-tech factory in Leipzig, Germany. It's expected to go on sale in Germany in April, and to arrive in other markets around the world soon after.
It's also expected to be a very big deal for Porsche -- and for Porsche's corporate parent, Volkswagen Group (NASDAQOTH:VLKAY). Here's why.
SUVs, not sports cars, have become Porsche's biggest business
To sports car purists, the idea of a Porsche SUV still seems like heresy. Porsche built its reputation on beautifully engineered sports cars, howling flat-six engines, and thrilling victories in grueling races like Le Mans.
But then -- to howls of outrage from those purists -- came the Cayenne, an expensive SUV first introduced by Porsche back in 2002. (Adding insult to injury for the Porsche faithful, the Cayenne shares its bones, and a good deal of its body panels, with the mundane VW Touareg.)
But the reality is that just more than half of the more than 162,000 vehicles Porsche delivered in 2013 were Cayennes. We think of the SUV's heyday as having passed, but the truth is, SUVs continue to be big business -- not just here in the U.S. but around the world.
A global boom for luxury SUVs has driven big gains for Porsche
True, the big sellers aren't the heavy, gas-guzzling truck-based SUVs of old. Compact "crossover" SUVs that share platforms with cars have become big sellers, offering more ride comfort and fuel economy than the big SUVs of old.
Even the Ford (NYSE:F) Explorer has evolved with the times -- the current version shares a platform with Ford's Taurus sedan, not its pickups.
But the real money is in luxury SUVs. Luxury vehicle sales have largely outperformed the overall market in the U.S. and Europe over the last few years -- while China's market for luxury vehicles, especially smaller luxury SUVs, has absolutely boomed.
Few luxury-car brands have the cachet -- or the profit margins -- that Porsche can boast. That has made the Cayenne a big seller, and a big source of profits for VW. And that makes the Cayenne's new sibling a big deal -- both for the market and for corporate parent VW.
Big sales should add to big profits for VW
Porsche CEO Matthias Mueller said on Tuesday that his company's annual sales will swell to over 200,000 in 2015, thanks -- mostly -- to the new Macan.
The Macan was first unveiled last November in Los Angeles, but the world has known it was coming for a while. It's mechanically related to Audi's popular Q5 SUV, but there are a lot of unique Porsche parts (and Porsche engineering) in the Macan. It's smaller than the Cayenne and around 25% cheaper. But it's still not cheap: It'll start at $49,900 in the U.S., but most models will go out the door for considerably more -- fully loaded, a top-of-the-line Macan can break $100,000.
As with all Porsches, there's an awful lot of profit in those prices. Through the first nine months of last year, Porsche's operating profit margin surpassed 18%, among the highest in the business.
Put another way: Over that same period, Porsche accounted for just 1.7% of the VW Group's total passenger vehicle sales but 26% of its pre-tax profits. And the Cayenne accounted for more than half of Porsche's sales in that period.
Clearly, if the Macan takes Porsche's sales from a little more than 162,000 last year to 200,000-plus by next year, the impact on VW's bottom line will be significant.
And that's why this new little Porsche SUV is a big deal for Volkswagen.
John Rosevear owns shares of Ford. The Motley Fool recommends and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.