Mercedes-Benz has cut its full-year financial expectations due to weak results in China, delivering another blow to the struggling German auto industry, Bloomberg reports.
On Sept. 19, Mercedes-Benz said it lowered its adjusted profit margin forecast for its main automotive business to “7.5-8.5 percent” from 11 percent previously. Sales of Mercedes-Benz’s most expensive models, such as the S-Class and Maybach sedans, have been hit by a further cooling of demand in China, the company’s biggest market.
Meanwhile, Mercedes-Benz said it expects its earnings before interest and taxes (EBIT) this year to be “significantly below” last year’s level. This is a major setback for the company’s strategy to boost profitability by selling more luxury models.
Speaking on an analyst call, Mercedes-Benz CEO Ola Källenius said Mercedes-Benz would “do everything we can” to boost performance, including launching a sales offensive with new products in China. “We will ride the wave, not just wait for the wind to turn.”
Shares of Mercedes-Benz fell 7.7 percent on Sept. 20 following the release of those reports, the biggest intraday drop since last May. So far this year, the stock has lost about 13 percent of its share price.
Mercedes-Benz’s latest electric car has had a lukewarm reception among consumers in China, where young consumers are increasingly turning to local brands with more advanced in-car digitalization and entertainment technology.
Not only is Mercedes-Benz’s business slipping in China, but its European sales are also under pressure. Mercedes-Benz deliveries across Europe fell 13 percent year-on-year in August this year, while cumulative sales for the first eight months were down 3 percent year-on-year.
Slumping electric car sales are hampering automakers’ efforts to meet European Union carbon emissions rules that will be tightened next year, which could expose the auto industry to billions of euros in fines.
The profit warning is the latest setback facing Germany’s all-important auto industry. Currently, the German auto industry is struggling to cope with a bumpy transition to electric cars and slumping profits in China.
This month, Volkswagen Group, Europe’s largest carmaker, scrapped a labor agreement that had lasted decades. At the same time, VW Group is also considering closing German plants for the first time due to lagging demand. Also last week, BMW Group lowered its full-year profit margin forecast, citing a sluggish Chinese auto market and weak sales of electric cars.
German Economy Minister Robert Habeck will hold an auto industry summit in Berlin next Monday (Sept. 30) to discuss ways out of the current crisis.