Porsche is playing a dangerous game

Porsche 911 911PorschePorsche 911.

On Friday, Porsche reported the best financial and sales numbers in company history.

But although revenue and profits both surged 25% in 2015, profit margins have been in a steady decline.

In 2013, Porsche reported 19% margins. That number fell to 18% in 2014 and to just 16% in 2015.

Although Porsche still has some of the best margins in the business, this trend is a direct effect of the company’s strategy that has made it so successful in recent years.

Porsche is best known for its iconic sports cars, but the company’s two best selling models are, in fact, the Cayenne and Macan crossover SUVs.

And the company’s financial success is built squarely upon the ability to move many examples of those two models.

The two SUVs accounted for 68% of the company’s worldwide sales last year. Of the 225,000 cars Porsche sold in 2015, 80,000 were Macans while 73,000 were Cayennes.

Porsche success with SUV shouldn’t surprise anyone.

The Cayenne has been a sales wonder for more than a decade. However, it was the arrival of the lower-priced Macan in March of 2014 that launched the company into the SUV stratosphere. In a matter of months, the Macan went from mysterious new model to the best selling car in the Porsche’s stable.

Selling tons of SUVs is a double-edged sword for Porsche. For most premium automakers, luxury SUVs are a reliable source of high transaction prices and high-margin sales.

That’s not necessarily the case for Porsche because the Macan and the Cayenne generally carry lower price tags than the company’s next two best selling models — the Panamera sedan and the 911 sports car.

Porsche Macan PorschePorsche Macan.

Generally, the cheaper the car, the less it costs less to build and sell. This applies to Porsche as well, but to a lesser extent. Traditionally, when a brand is part of a larger conglomerate, it’s able to find cost savings and synergy by adapting technology from sister companies. But Porsche doesn’t really do that.

That’s because Porsche is more or less an honorary member of the VW Group family. Take the Macan for instance. Although it shares a platform with the rival Audi Q5 crossover, 70% of the Macan’s parts are different from the Q5. Pricey Porsche-only parts of the Macan include the twin-turbo V6 engines, the dual clutch PDK transmission and the infotainment system. (The 2017 Macan will be available with a 2.0-litre turbocharged four-cylinder engine sourced from VW Group. However it was tuned by Porsche to produce more power.)

As a result, the cheaper Macan is more than likely not that much cheaper to build and sell than the pricier Cayenne.

Porsche Cayenne TurboPorschePorsche Cayenne.

In the US, the current base Macan S starts at $52,600. Although Business Insider’s highly optioned Macan S test car left the showroom with a price tag of just over $70,000, most cars sell in the low to mid $60K range. Most car companies in the would consider selling a compact luxury SUV for that price a big win. For Porsche, that number is less impressive.

The Cayenne, Porsche’s previous volume leader, starts at a reasonable $58,300. However, most Cayennes don’t exit dealer lots for less $70-$75,000.

In addition, generously optioned versions of the top-of-the-line Cayenne Turbo S comes perilously close to the $200K mark.

The Panamera sedan starts at $78,100 in the US, but most base models aren’t leaving showrooms for less than $85,000-$100,000. The ultra-premium Panamera Exclusive Series opens at a whopping $263,900.

Porsche Panamera 4S ExecutivePorschePorsche Panamera.

And then you have the 911. Although the base 911 starts at $89,400, even low-end version of the car rarely carry a price tag of less than $100K. And top end cars such as the 911 Turbo S Cabriolet carry a starting price of $200,400.

As a result, Porsche had been able to maintain an average transaction price of between $90,000 to $100,000 for its entire lineup of cars. However, with the after the arrival of the Macan that range has slipped to roughly $85,000 to $95,000.

Don’t get me wrong. Porsche is doing great right now. But sacrificing margin for volume has its potential pitfalls. Since they are now making less money per car, Porsche has to sell more cars to make money.

As long as there’s growth, things are groovy. But any sort of economy downturn could put the company in a precarious state. In the past, Porsche may have needed to find customers to buy two 911’s to generate $250,000. Under its currently strategy, it would need to sell three Cayennes or four Macans to make that same amount.

Granted, the market for crossovers is significantly larger than sports cars. But that’s still three or four deals as opposed to just two.

It’s a dangerous game. But for now, Porsche is probably happy to play it.

NOW WATCH: JAMES ALTUCHER: College is a waste of time and money

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.