Mercedes-Benz Group AG plans to step up cost reductions after fierce competition and weaker demand in China hit the luxury-car maker’s profits.
The company’s key gauge of profitability slid to 4.7% in the third quarter, undershooting its minimum target of 8% and the lowest level since the carmaker split from its truck business in late 2021. The decline comes after sales of the automaker’s most expensive models fell during the period, dealing a blow to a luxury-first strategy meant to deliver higher profits.
“The Q3 results do not meet our ambitions,” Chief Financial Officer Harald Wilhelm said Friday. “We are taking a prudent view about market evolution going forward and we will step up all efforts on further efficiency increases and cost improvements across the business.”
Mercedes’ shares dropped as much as 3.9% in early trading. The stock is down about 9% this year.
Mercedes’ results contrasted sharply with Tesla Inc., which saw its shares surge the most in 11 years after the company posted surprisingly strong earnings and profit margins. The US manufacturer projected increased deliveries in the final quarter, while Mercedes said its sales would remain at a similar level.
China’s economic slowdown has hit the German automaker hard, especially in orders of high-end S-Class and Maybach models. Meanwhile, its vast industrial footprint means the company faces structurally higher costs than firms like Tesla. The downturn in China had already forced the company to cut its 2024 sales outlook and lower adjusted profit margins for its cars unit.
While Mercedes pledged to improve its cost position, it didn’t elaborate on where cuts would fall. The manufacturer operates several plants in Germany, where labor and energy costs are relatively high. It’s also investing heavily in research and development for its electrification shift, all while producing both electric and combustion engine models at its sprawling network of factories.
The carmaking profitability figure is likely the lowest since the second quarter of 2020, when sales and production were hit by disruptions during the early stages of the coronavirus pandemic. Mercedes didn’t publish figures for just its carmaking margin until its split from Daimler Truck, instead providing a combined figure for cars and vans.
The results are a blow to the core of Mercedes’ strategy to help fund its transition to an all-electric future. China, where the automaker sells a relatively high share of its most opulent vehicles, was seen as a template the company wanted to replicate elsewhere.
Mercedes’ third quarter revenue was €34.5 billion ($37.4 billion), down around 7% from the same period last year. Earnings before interest and taxes fell to €2.52 billion, marking a 48% decline to the same period a year ago.
