German legacy automaker Mercedes-Benz warned that it may hit the lower end of its 12-14% adjusted return on sales guidance due to the “brutal” electric vehicle market.
Chief Financial Officer Harald Wilhelm emphasized that the intensifying competition in the industry prompts them to launch price cuts despite high production costs, The Guardian reported.
As a result, the German automaker will rely on its internal combustion engine-powered (ICE) vehicles to boost its earnings reports.
Mercedes’ Q3 2023 results
Electric automakers’ major price cuts and ongoing supply chain constraints led Mercedes CFO to describe the electric vehicle industry as a “pretty brutal space.”
Reuters reported that Mercedes shares declined over 6% by 0733 GMT to the lowest record in almost a year.
The German company also disclosed an adjusted return on sales of 12.4% in its automotive business for the third quarter.
Meanwhile, its Earnings Before Interest and Taxes (EBIT) declined 6.8% to 4.8 billion euros ($5.1 billion). This figure slightly surpassed the industry forecast owing to the 44% earnings growth in its van business to 715 million euros and a 15% adjusted return on sales.
However, the overall revenue for the Group dropped 1.4% to €37.2 billion. According to CFO Harald Wilhelm, the following factors adversely affected the Group’s Q3 2023 results:
- Higher inflation
- A €329 million headwind from foreign exchange
- Supply chain-related costs
Status quo
EV sales continue to surge in the European and Chinese markets. However, the increasing number of new cheaper models from Chinese brands challenge European automakers.
According to CFO Harald Wilhelm, some automakers have started lowering their all-electric vehicle models’ prices to match petrol-powered counterparts. It is indeed problematic as production costs remain high.
“I can hardly imagine the current status quo is fully sustainable for everybody.”
Chief Financial Officer Harald Wilhelm
Pressure
Interestingly, the report noted that China has a strong influence on European automakers’ decision to join the electric mobility shift.
True enough, the Chinese Government has strongly promoted the industry through major policies and subsidies.
“Chinese manufacturers had never managed to export large numbers of petrol and diesel cars to Europe or the US, but now brands such as BYD, Nio, Xpeng and the Chinese-owned MG are gaining market share rapidly, to the alarm of traditional carmakers in Europe and the US.”
The Guardian
In effect, the EU took a major step against the unjust pricing strategies of Chinese automakers by investigating their EV subsidies. It can potentially result in imposing tariffs on EV imports as the EU seeks to defend its industry.
Mercedes’ Q3 2023 sales declined 4%, with top-end sales dropping 11%, due to model changeovers and Bosch-supplied 48v systems shortage. Its vehicle revenue fell 3.8% because of waning deliveries, as per Reuters. Nonetheless, its average selling price stayed the same, Mercedes noted.
That said, the company maintained its FY sales forecast of no YoY change.
