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Electric Dreams

Porsche's Quest to Make Eco-Friendly Sports Cars

Porsche is trying to reinvent itself in the wake of Germany's diesel-emissions scandal by turning itself into an environmentally friendly sports-car company. It's a billion-euro bet with enormous possibilities -- and enormous risk.

Porsche
By and
Wednesday, 2/27/2019   01:16 PM

The Porsche of the future is still so secret that it's not allowed off the company's premises without an elaborate disguise. Two fake exhaust pipes stick out the rear, while a green pollution badge adorns the windshield. It's all an act to mislead competitors. Under the hood, there's neither a combustion engine nor an injection system. Instead, there are two electric motors and a heavy battery.

So far, it's just a test vehicle inconspicuously parked in front of Porsche's development center in Weissach, near Stuttgart. Porsche, however, is planning to unveil its first electric car at the end of 2019, and revamp its brand from the ground up.

Even for the engineers responsible for its roll-out, the new e-model is a culture shock. Ever since the first sports car hit the pavement 70 years ago, the name Porsche has stood for flashy combustion engines that roar when drivers hit the gas. Poor emission values and high fuel consumption were practically part of the brand's DNA. But the company's new model, the Taycan, is emissions-free -- and it's as quiet as a toy car.

For Porsche, this means it's no longer competing with the likes of Ferrari, Maserati, BMW or Mercedes. It's now in a direct contest with Tesla, the pioneering electric-car company from California. "Our goal is to be a technological trailblazer," says Porsche CEO Oliver Blume.

The End of an Era

Blume's plans are more ambitious than those of other German automobile manufacturers. By 2025, he wants at least half of the cars Porsche sells to be electric. Five years later, according to the company's own forecasts, Porsche will hardly have any vehicles on its assembly line with conventional combustion engines.

In late 2018, the company's supervisory board resolved to outfit Porsche's best-selling car with an electric motor within the next few years. The new version of the Macan, a compact off-road vehicle, will soon be fully electric. For the petrol-powered model, there will be only an update. After that, the era of the gas-guzzler will gradually come to an end.

It's a billion-euro bet with enormous possibilities -- and enormous risk. If Blume's plan works out, Porsche could become an ecologically oriented sports-car company, a role model for the entire German automobile industry. It would be proof that the industry has learned its lesson after the diesel scandal -- in which Porsche's parent-company, the Volkswagen Group, was found to have tricked emissions tests to make its vehicles seem more environmentally friendly than they really were -- and that it has not entirely slept through the transition to electric mobility.

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The problem, however, is that Porsche's offensive comes at a time of great uncertainty. Nobody knows whether the company will be able to sell enough of its new e-cars. The brand has many loyal fans with a penchant for combustion engines. Even one of Porsche's brand ambassadors, Walter Röhrl, an ex-rally driver, has said e-mobility is the "wrong track."

Porsche's Dirty Past

Meanwhile, demand in the world's two largest automotive markets, the United States and China, is slowing, and disputes are further weighing on business. If U.S. President Donald Trump makes good on his threats to impose punitive import tariffs on foreign cars, Porsche would be more adversely affected than other German manufacturers. The sports-car maker sells nearly a quarter of its vehicles in America, yet has none of its production facilities there. The result would be a sharp drop in profits.

Then there's the fact that Porsche, in its quest toward a clean future, is regularly confronted with its dirty past.

At the end of January, the carmaker filed self-indictments with Germany's Federal Motor Transport Authority (KBA) and the U.S. environmental authorities. The reason: Porsche's iconic 911 sports car was emitting more CO2 than the company had previously disclosed. And it wasn't just older models: its 2016 and 2017 models were affected as well. The authorities are now investigating whether Porsche's failure to disclose was a mere oversight -- or possibly Germany's next exhaust scandal. The Public Prosecutor's Office in Stuttgart has initiated a so-called inspection process. Porsche has added that it's continuing its own internal investigations.

Porsche is also still under pressure for its role in Germany's "Dieselgate" scandal. Three company employees are under investigation on suspicion of fraud and false advertising. And the case against them is getting stronger, sources familiar with the investigations say. The defendants have yet to be granted access to the evidence against them, but it is conceivable that charges will be filed against them in 2019, the sources add.

To this day, Porsche rejects any blame for the German diesel scandal. The company has remained firm on its assertion that it didn't build the motors in question itself, but rather bought them from its sister brand Audi. Porsche has even considered pursuing financial compensation from Audi to the tune of 200 million euros ($227 million).

'Not Future-Proof'

At first, Porsche cooperated with the prosecutor's office. Negotiations over a fine began, but then in January, Porsche broke off the talks. The company's lawyers told investigators the company had a different view of things. Meanwhile, the Public Prosecutor's Office has initiated non-compliance proceedings against Porsche. The company could now face a fine of around a half-billion euros.

The diesel scandal is becoming a financial risk for Porsche. It's also damaging for the company's profile. "The brand's image is our lifeblood," Wolfgang Porsche, the supervisory-board chairman and grandson of the company's founder, once said at the Geneva Motor Show. This is all the more true if the manufacturer wants to win over customers with clean electric motors. Porsche will only become a "technological trailblazer" when it can put Dieselgate behind it once and for all.

Porsche could have prevented that disaster if it had only listened to its then CEO, Wendelin Wiedeking. Shortly after the turn of the millennium, he argued that diesel-powered vehicles were not the future of mobility. "Diesel engines," he said, "are not, in our eyes, a viable propulsion technology for the future."

Wiedeking was not only bothered by the fact that most of diesel's avowed fans were in Europe, and not in other major auto markets like the U.S. or Japan. He also found it problematic that, while diesel exhaust contained less CO2, it had other poisonous components such as nitrogen oxides. Wiedeking described diesel exhaust as "toxic." From his point of view, diesel was only appropriate for the tractors Porsche produced back in the 1950s and '60s.

But within the Volkswagen Group, the former Porsche CEO was alone in his assertions. The concern's patriarch, Ferdinand Piëch, put all his weight behind a diesel-powered Porsche in order to expand the technology to all of the group's other brands. Even Porsche's sales division had sensed a large business opportunity, since the technology dovetailed so well with a product category the company had only recently begun to offer: the SUV.

Dubious Technology

Weighing in at 2.3 tons, the Porsche Cayenne SUV was significantly heavier than other Porsche models. Its fuel economy wasn't great, either: It burned between 13 and 15 liters per 100 kilometers (between 15.7 and 18.1 MPG). With its diesel version, Porsche could offer prospective buyers an economical and supposedly environmentally friendly alternative. It consumed only about 9 liters of fuel, allowing customers, so the company's promise went, to drive a massive off-road vehicle with a clear conscience.

Practically speaking, Porsche didn't have to invest much in creating the car because the technology was already available. The engine-makers and software engineers at its sister company, Audi, had developed novel diesel motors allegedly capable of turning the heavy Q7 and Q5 models into fuel-efficient, low-emission vehicles.

Even Wiedeking couldn't push back against these machines, celebrated as they were throughout the entire VW Group as marvels of innovation. The first Porsche Cayenne with a diesel engine rolled off the assembly line in 2009. The smaller Macan followed a few years later. Both were outfitted with motors from Audi -- and were full of dubious technology.

Mandatory exhaust scrubbers -- devices that remove particulates or gasses from exhaust -- were slowed or completely switched off under normal driving conditions. Only during official inspections were the vehicles' emissions within the legal limits.

That Special Porsche Flair

But the pitfalls of diesel technology didn't seem to interest anyone at Porsche at first. The success drowned out the critics. Both SUVs became sales hits and soon accounted for a majority of the company's turnover. The number of diesel-powered vehicles in Porsche's global fleet increased from 0 to 16 percent within just a few years. In Germany, it increased to as much as 40 percent.

It was no coincidence the diesel engines were so successful. From a technical perspective, the engineers had pulled off a coup. They had given the Macan and Cayenne vehicles -- in fact identical in construction to the Audi Q5 and Q7 -- Porsche flair. But legally and morally speaking, the additional functionalities were more than questionable.

DER SPIEGEL

Witnesses testified that so-called "emotionalization packages" were developed for the Porsche SUVs. These included features designed to convince customers to spend a few thousand euros more on an SUV from Porsche rather than one from Audi. These included some harmless gimmicks, such as the typical roaring Porsche sound, as well as a sporty and dynamic driving experience and fast acceleration. These extras were made possible by a further reduction in exhaust scrubbing, accomplished with the help of dubious cut-off devices and control programs.

Witnesses have said in questioning that Porsche managers knew at the time that these interventions were problematic. Porsche, for its part, denies this: Spokespeople argue the company commissioned Audi to deliver the corresponding functionalities and expected them to do so in accordance with the law. The Stuttgart-based carmaker claims it didn't learn about the manipulations until the end of 2015.

Shifting the Blame

Investigators say Porsche's managers should have acted then at the very latest. After the diesel scandal was discovered in the U.S., the American authorities informed Porsche that they had discovered the manipulation software. VW, Audi and Porsche admitted later that they had installed illegal functions.

From the point of view of the prosecutors, Porsche's mistake was in continuing to sell vehicles with defeat devices outside the U.S. And they did so, according to sources in legal circles, even though managers must have known which models contained the illegal software in the rest of the world. Porsche denies any misconduct: "Porsche AG assumes that it has comprehensively fulfilled its supervisory duty in the past."

Lawyers involved in the case against Porsche find it questionable that the automaker places all the blame on Audi. After all, overall responsibility for a vehicle lies with the manufacturer, regardless of whether the fraudulent software came from Audi or not.

Porsche had promised to get to the bottom of things. Internally, measurement programs began in late 2015 under the codename "Charlie." Test drivers navigated the Cayenne and Macan models through the streets of Stuttgart. They wanted to prove that the vehicles were in accordance with limit values for nitrogen oxides under normal driving circumstances, too. Yet try as the drivers might, those values were exceeded even in the best conditions, sometimes by a factor of two.

Porsche still denied any manipulations in June 2017, when DER SPIEGEL demonstrated in an elaborate test that the newest Cayenne -- which bore the Euro 6 emissions standard -- had also been equipped with an illegal cut-off device. "We have no explanation for these readings," the company said.

Assuming Responsibility

Transportation and investigative authorities saw things differently. In July 2017, the German Transportation Ministry imposed a registration ban on all Porsche Cayennes with 3-liter motors. The KBA ordered a recall for thousands of diesel-powered Porsches. The public prosecutor's offices in Stuttgart and Munich conducted searches of Porsche's headquarters and other buildings. The former head of powertrain development, Jörg K., was put into pre-trial detention for a period. The suspects insist they are innocent and dismiss all accusations.

Porsche is still sticking to its uncompromising line of defense, though lately the company's official line has been a bit more conciliatory. Blume, the CEO, has at least said Porsche does have some moral responsibility. "Of course, Porsche assumes responsibility for its vehicles vis-à-vis its customers," he says, "regardless of whether Porsche produced these engines or not." He adds the company will continue to cooperate with the Public Prosecutor's Office in Stuttgart.

Strategically speaking, Blume has been on the offensive for quite some time. In fall of 2018, the manager announced that Porsche was abandoning its diesel pursuits. Since then, the company hasn't built a single vehicle with a diesel engine. The goal is now to "sharpen the core brand and concentrate even more heavily on electric mobility," Blume says.

In the coming years, Porsche will invest 6 billion euros in e-mobility. The company has hired 1,500 new people for its Taycan project alone. A new production facility with five different buildings is being constructed at its headquarters in the Stuttgart district of Zuffenhausen. It was important to Porsche's works council, the body that represents the interests of employees, as well that the company "not become a museum in its own hometown."

The new electric Macan will be produced in Germany, too. Starting next year, the plan is for the compact off-road vehicle to be built at the Porsche plant in Leipzig. Modern battery technology should make it possible for the electric SUV to have the same range as today's combustion engine. It is set to go on sale in 2022.

An Emissions-Free Future

Blume feels validated by positive feedback from Porsche's customers. For the Taycan, some 20,000 prospective buyers have already put down deposits of 2,500 euros each.

In the first few years after its rollout, however, the futuristic technology won't be very profitable. Electric SUVs are more expensive to produce than conventional ones, and according to Porsche's own estimates, the company will rack up additional costs of around 8,000 to 10,000 euros per vehicle. With the Taycan, according to internal prognoses, Porsche will only manage to cover its costs.

This doesn't scare Blume, though. "The material costs are a huge additional burden," the Porsche manager says, "but we still want to maintain our high returns." He hopes that as batteries grow more ubiquitous and costs fall, Porsche's profits will rise in the long-run. Even the Cross Turismo, a Taycan spin-off set to go into production in 2020, is expected to yield double-digit returns.

Blume doesn't want to make the same mistakes that Germany's other industrial sectors, from photography to TV and mobile phones, have made in recent decades. Because they all saw investments in the future as too risky, they clung to their core businesses until the very end.

Blume has a new slogan for Porsche: "We want to drive into the future emissions-free." He's even a proponent of Volkswagen ultimately manufacturing its own battery cells, a position that is not uncontroversial within the company. But Blume's message has been well received by investors, who have already begun to dream of the VW subsidiary one day going public.

Technically speaking, Porsche's electric vehicles are perfectly capable of keeping up with conventional, combustion engine-driven ones. In fact, an e-Porsche accelerates faster than most gas-powered vehicles: from 0 to 100 in less than three seconds. With those capabilities, it can leave the competition in the dust.

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