Shares of the German luxury carmaker, Mercedes-Benz, took a hit on Thursday, witnessing a provisional closure down by 5.7%. This descent marks the most significant dip since May 4, as per LSEG data. The company’s earnings before interest and taxes (EBIT) decreased by 7%, settling at 4.8 billion euros ($5.06 billion) for the third quarter. Concurrently, the revenue slid 1.4% to 37.2 billion euros, failing to meet the consensus estimate. These figures reflect the repercussions of a 5% drop in passenger car sales, a situation exacerbated by persisting supply chain complications.
Electric Vehicle Market
The electric vehicle (EV) market, described as a “pretty brutal space” by Chief Financial Officer Harald Wilhelm, is creating waves of competition for Mercedes-Benz. The company shed light on the intense price competition it’s facing, especially within the EV segment. It was highlighted how traditional automakers are pricing EVs lower than standard combustion-engine vehicles, despite incurring higher production costs. Wilhelm expressed concerns over this pricing strategy, stating, “I can hardly imagine the current status quo is fully sustainable for everybody.”
Company’s Performance and Strategies
- Overall Sales: Mercedes-Benz reported an almost stable car sales performance for the first nine months, despite witnessing a decline in sales in China. However, the German market saw growth.
- EV Sales and Targets: The company’s share in the all-electric vehicle market surged from 6% to 11% during the first nine months. Staying committed to its future plans, Mercedes-Benz aims for 50% hybrid and EV global sales by 2025. Moreover, from 2025 onwards, the company plans to exclusively introduce electric-only models.
- Challenges: The carmaker has identified inflation, supply chain disruptions, and foreign exchange losses as significant challenges this quarter.
- Pricing Strategy: Mercedes-Benz has refrained from succumbing to the market trend of heavy price cuts. The company aims to prioritize boosting margins over sheer volume. CFO Wilhelm clarified that recent discounts on some models in Germany during Q4 do not represent a shift in the company’s long-term pricing strategy.
Comparative Analysis
Mercedes-Benz’s sluggish initiation to the electric vehicle transition makes it vulnerable to stiff competition from industry giants. Tesla, spearheaded by Elon Musk, and Chinese competitors like the Warren Buffett-backed BYD are significant players posing challenges. To add to the woes, other carmakers, such as Ford and Tesla, are implementing price cuts to stimulate demand in markets ranging from the US to China. Notably, Mercedes-Benz’s peers also felt the heat, with BMW stocks dropping by 4% and VW by over 2%.
Financial Insights
Despite the downturn in the car division, the company’s vans division painted a brighter picture. Earnings from vans surged by 44%, translating to 715 million euros, with a commendable adjusted return on sales of 15%. Furthermore, the company anticipates the sales rate of the first three quarters to persist in the fourth quarter, holding onto its full-year sales target of no year-on-year change.
Impact of Global Market Trends
The global automobile industry is undergoing a significant transformation. With advancements in technology and a stronger emphasis on environmental sustainability, electric vehicles are no longer just an alternative; they are fast becoming mainstream. Traditional carmakers like Mercedes-Benz, with deep-rooted legacies in combustion-engine vehicles, are facing a two-pronged challenge: transitioning to EVs and combating fierce competition from new entrants in the EV market.
Supply Chain Woes
One of the pressing concerns that Mercedes-Benz and other automobile giants are confronting is the disruption in the supply chain. The pandemic induced challenges, including delays, shortages, and increased costs. A specific example that Mercedes-Benz faced was a shortage in 48-volt systems, supplied primarily by Bosch, which significantly impacted their sales. While supply chain issues are expected to ease out with time, their implications on production and delivery schedules are evident.
Looking Forward
As Mercedes-Benz grapples with the challenges presented by the EV market, it remains steadfast in its commitment to its goals. Its resilience is evident in its strategic pricing decisions and unwavering focus on ensuring profitability and sustainability in the long run. Click here for more..
