Mercedes-Benz lowered its full-year profit margin target for the second time in less than two months. The company joins an increasing number of competitors blaming declining demand in China, the world’s largest automobile market.
Following the news’ late Thursday disclosure, European auto markets also saw a decline. The German luxury carmaker’s shares fell 7.5% to their lowest point in almost two months.
The business lowered its earnings forecast for 2024 for both Mercedes-Benz Cars and the Mercedes-Benz Group. It cited slower GDP growth in China due to decreased spending and a persistent decline in the real estate market.
CEO Ola Kaellenius told investors on a call after the news that “there is a tremendous amount of caution, I’m trying to say this diplomatically,” and that it was not surprising that spending on pricey capital goods was cut back in such an atmosphere.
“How long will that go on? I don’t know, but I remain cautious for the foreseeable future in China.”
Due to China’s persistently low demand for luxury vehicles, the Stuttgart-based automaker has already lowered its July projections.
Mercedes-Benz Cars has reduced its previous expectations for an adjusted return on sales from 10% to 11% to between 7.5% and 8.5% in 2024. This suggests that an adjusted return on sales of roughly 6% is anticipated for the second half of the year.
Because of this, instead of the previously anticipated small decline, Mercedes-Benz Group’s profits before interest and taxes (EBIT) are now estimated to be significantly below the level of 19.7 billion euros ($22 billion) from the previous year.
The group’s estimated EBIT is 15.83 billion euros, based on LSEG estimations.
“While some investors had been anticipating a profit warning … we still view this news as a surprise, especially given the magnitude and lack of cautionary commentary ahead of today’s news,” analysts at RBC stated.
The group’s industrial segment is also anticipated to generate much less free cash flow than it did in the prior year.
BMW joined the list of manufacturers having trouble in the second-biggest economy in the world last week when it announced that sales in China were being negatively impacted by persistently low demand.
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