Mercedes-Benz has cut its full year profit margin target for the second time in less than two months, joining a growing number of rivals blaming a weakening Chinese car market, the world’s largest.
Reuters said Mercedes shares fell to their lowest level in nearly two years after the profit warning disclosed late on Thursday and were the top decliners among European auto stocks.
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Economic weakness in China as well as a local real estate crisis has severely hit demand, including for vehicles, which has become a headache also for Volkswagen, Porsche and BMW, the report said.
As a result, Mercedes-Benz cut its earnings outlook for 2024 for both Mercedes-Benz Cars and the Mercedes-Benz Group after already downgrading its margin outlook in July on the same grounds.
“There is a tremendous amount of cautiousness, I’m trying to say this diplomatically,” Reuters quoted CEO Ola Kaellenius as telling analysts in a call following the announcement, adding it was not surprising that spending for expensive capital goods was pared back in such an environment.
“How long will that go on? I don’t know, but I remain cautious for the foreseeable future on China.”
Reuters said Mercedes-Benz Cars now expects an adjusted return on sales to be between 7.5% and 8.5% in 2024, down from 10% to 11% previously, implying an expected adjusted return on sales of around 6% for the second half of the year.
Mercedes-Benz Group earnings before interest and taxes (EBIT) consequently are now expected to be significantly below last year’s level of EUR19.7bn (US$22bn), compared with a forecast for a slight drop previously.
According to LSEG estimates, the group’s EBIT is expected to come in at EUR15.83bn euros.
“Needless to say that we’re not satisfied with the situation and we’ll review a comprehensive set of measures, how we step up the contribution margin quality,” finance chief Harald Wilhelm said, according to Reuters, adding the group would seek further efficiencies.
Analysts told Reuters that, while investors had expected a profit warning, the warning was still seen as a surprise, “especially given the magnitude and lack of cautionary commentary ahead of today’s news”.
The news agency noted BMW last week also flagged ongoing muted demand in China affecting sales in the country, adding to the group of automakers facing difficulties in the world’s second biggest economy.
