Stellantis e la tempesta auto

Automotive

Mercedes-Benz, China triggers new profit warning. Headline at bottom

Second profit warning in two months. Ebit, is seen to be 'significantly lower' than in 2023, previously expected to fall 'slightly'

20 September 2024

Auto, brusca frenata per il mercato in Europa

3' min read

Goodbye double-digit margins and falling share price: -6.81% on Friday and -12.09% since the beginning of the year. The difficulties on the Chinese premium and luxury car market forced the Mercedes-Benz group to lower its full-year forecast for the second time in two months. The weakness of the Dragon economy, with its effects on domestic consumption, and the strong local competition cast a shadow on the business of the large foreign groups.

Between the first seven months of 2023 and 2024, Mercedes-Benz recorded an 8% drop in sales (401k). Now the group's Ebit, the operating profit, is seen to be "significantly lower" than 2023 (19.7 billion), whereas the three-pointed star had previously forecast a "slight" decline from the previous year. According to LSEG estimates, Mercedes-Benz Ebit this year is expected to stand at EUR 15.83 billion. The Stuttgart-based manufacturer warns that 'overall, the sales mix in the second half of 2024 is expected to remain unchanged compared to the first half and thus weaker than initially expected'. Furthermore, the German giant expects the second half of 2024 to see 'valuation adjustments' with 'dynamic' pricing that will have an impact on profits.

L’auto tedesca in panne

Consequently, the Swabian group revised its full-year estimates with an annual adjusted return on sales in the range of 7.5%-8.5% compared to the previous target of 10%-11%. The expected return on adjusted sales for Mercedes-Benz Vans remains unchanged at 14%-15%, while the expected return on adjusted equity for Mercedes-Benz Mobility remains at 8.5%-9.5%.

"How long will this situation last? I don't know, I remain cautious about the future with regard to China," said CEO, Ola Källenius, in a call with analysts after the announcement. "Needless to say, we are not satisfied with the situation and we will review a comprehensive set of measures to improve the quality of the margin," said chief financial officer Harald Wilhelm, adding that the group will look for further ways of efficiency.

RBC analysts noted that although investors had expected an earnings warning, this warning was still seen as a surprise, "especially given the magnitude and lack of cautionary comments prior to today's news".

According to Ubs analyst Patrick Hummel, the three-pointed star's profit warning will leave the market perplexed about underlying profitability and capital allocation in 2025. Unsurprisingly, the current market environment in China is putting downward pressure on margins, but Ubs notes that Mercedes' profit warning is more important than Bmw's recent one, despite not being linked to a major recall. The Bavarian carmaker's guidance cut last week was worth about 200 basis points in automotive Ebit margin for the second half of the year, while for Mercedes it is 350 basis points. 'We expect to see significant consensus downgrades for 2025, potentially in the order of 20 per cent at the level of group Ebit and Eps,' Hummel concluded.

Last week, Bmw also reported persistent weak demand in China affecting sales in the country, adding to the group of carmakers facing difficulties in the world's second largest economy. And on Thursday, new rumours were circulated about the seriousness of the situation for Volkswagen, which is preparing a drastic plan of cuts in German factories, in the order of tens of thousands of jobs.

The deepening crisis for the entire German automotive industry is prompting government intervention. The Minister of Economics, Robert Habeck, has floated the idea of additional support for carmakers and will discuss ways to address the challenges of the ailing sector at a summit in Berlin on Monday. Speaking during a visit to the VW plant in Emden, near the Dutch border, Habeck told workers that although manufacturers must take some of the responsibility for the current situation, he feels 'an obligation to do something to get the market back on track'.

'A large part of the problems have to be solved by Volkswagen itself, as they are inherited from the past: the cost structure has to be reviewed,' the minister told reporters in a statement on the sidelines.

The German automotive industry as a whole is worth a turnover of just under EUR 500 billion (just under 12 per cent of Germany's GDP, which reached EUR 4.2 trillion in 2023) and 1.5 million jobs.

Alberto Annicchiaricovicecaposervizio
Luogo: Milano
Lingue parlate: inglese (C1), buona comprensione di francese e spagnolo
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