Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Mercedes-Benz and Porsche pledged to strengthen cost cuts after the German carmakers reported sharp declines in quarterly profits due to a slump in Chinese demand.
Shares in Mercedes-Benz fell more than 3 per cent on the news on Friday that operating margins in its car division had dropped to 4.7 per cent in the third quarter, compared with 12.4 per cent a year earlier.
Net profits more than halved to €1.7bn from a year earlier on the back of a 6.7 per cent decline in revenue to €34.5bn. Sales in China fell 17 per cent while those in Germany suffered a 25 per cent decline.
Mercedes-Benz has already lowered its annual profit margin guidance twice in the past three months, while most of its other big European rivals have also been struggling.
Operating profits at Porsche also fell 41 per cent to €974mn for the July-to-September quarter as the German sports car maker warned of “a structural shift in demand” in China. Revenue fell to €9.1bn from €9.7bn as it maintained its full-year guidance, which was cut in July.
“We are reviewing our product line-up and ecosystem, as well as our budgets and cost position,” chief financial officer Lutz Meschke said on Friday.
Earlier this week, Volvo Cars halved its forecast for annual sales growth, and Volkswagen in September cut its annual guidance for the second time in three months. Renault remains the only carmaker in Europe that has maintained its full-year financial targets.
Margins have suffered at Mercedes-Benz after it was forced to offer incentives to consumers because of slowing global demand for electric vehicles and financial support to struggling dealers in China, where spending on luxury goods has been hit by an economic slowdown.
German carmakers had been among the biggest beneficiaries of China’s booming automotive market, leaving them significantly exposed to the country’s current economic malaise. Mercedes-Benz last year sold roughly a third of its cars in its biggest market of China.
Chief financial officer Harald Wilhelm told investors on Friday that the company was “working on all levers” to improve its performance and to be prepared if there was no short-term recovery in market conditions.
“We will definitely look on the cost side, and each and every element and stone, and turn it around . . . given this tighter market environment,” he said.
European carmakers have invested heavily in producing EVs ahead of a planned EU ban on the sale of new combustion engine cars by 2035. But they are now struggling with falling demand: Germany and other European countries have cut subsidies that had encouraged people to buy, and charging infrastructure remains patchy.
“Battery electric vehicle demand in Europe is running at far lower levels than ever expected by industry,” Wilhelm said.
Mercedes-Benz reported a 31 per cent year-on-year decline in sales of pure electric vehicle in the most recent quarter, while demand for plug-in hybrids rose 10 per cent.
Tom Narayan, an analyst at RBC Capital Markets, said Mercedes-Benz’s free cash flow was higher than expected despite “a severely depressed” quarter. “This is important as it supports the dividend and capital return in 2025,” he said in a note to clients.
Wilhelm told investors that the company would seek approval for additional share buybacks at its annual shareholder meeting next year.
Read the full article here
