2024-10-25 14:09:00
German car manufacturers are weakening, this also applies to Mercedes-Benz. One market in particular creates problems for the producer.
Stuttgart.
Automaker Mercedes-Benz suffered a third-quarter profit slump due to weakness in the important Chinese market. The result fell by around half, especially the passenger car sector was disappointing due to strong competition in the People’s Republic and the generally weak economic situation. Turnover fell by 6.7% to 34.5 billion euros. Group profit fell by more than half to 1.72 billion euros.
“The third-quarter financial results do not meet the expectations that we at Mercedes-Benz have for ourselves,” Chief Financial Officer Harald Wilhelm said, according to the statement. Now he wants to pay even more attention to costs and efficiency. Management had already significantly reduced its profit expectations for 2024 in September. Stocks plummeted. From the annual high of over 77 euros recorded in April, the price loss was around a quarter.
Rich Mercedes customers became thrifty
Analysts were already expecting a significantly worse quarter after the warnings. They had not predicted that Mercedes would achieve an operating profit margin of only 4.7% in its core passenger car business before interest, taxes and special items. A year earlier it was 12.4%.
Mercedes is in trouble, especially in China, because the expensive models with the Star are not doing as well as expected and there are no signs of improvement for the current year. Expensive cars are the central element of CEO Ola Källenius’ strategy and have driven the Swabians’ return on sales to record levels in recent years. However, with the economic crisis in the People’s Republic, especially in the real estate market, wealthy Mercedes customers have become unexpectedly thrifty.
Competition in China is growing
Furthermore, competition from national car manufacturers is growing in the country, which has guaranteed the growth of German manufacturers for years. In the rapidly growing electric sector in China, Mercedes still expects resounding success with its models such as the EQS, the fully electric counterpart of the S-Class. In the third quarter, Mercedes spent a total of three figures, among other things , to reduce inventories of electric cars on dealer forecourts through discounts and to support sales in China with subsidies, as CFO Wilhelm explains.
According to the director of the Bochum private institute Center Automotive Research (CAR), Ferdinand Dudenhöffer, Mercedes-Benz also has a “huge problem with China with its electric cars”. “Mercedes needs to change course. When it comes to electric cars for China, Mercedes needs more engineering spirit from Tesla, BYD or Xiamio,” said Dudenhöffer. With the return to an EBIT margin of 4.7%, Mercedes has “reached the level of the restructuring VW brand”.
The September forecast cut was the second time this year that management had to curb earnings expectations. Before the weekend, Mercedes therefore lowered its sales expectations for the entire group and those for the passenger car division: both are now expected to be slightly below the previous year’s level.
Mercedes sold 503,573 cars in the third quarter, 1.4 percent less than a year earlier. However, the automaker could no longer achieve such high prices and sold a smaller percentage of more expensive cars, causing profits to plummet.
An important key figure for investors is in better shape
Mercedes performed better than is generally thought in terms of free cash flow in the industrial sector, thus excluding financial services. The key figure is important for investors because Mercedes wants to use available funds to buy back shares in addition to the regular dividend. These are popular with many professional investors because they mathematically increase the profit rate per share and can therefore support the price.
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