Mercedes-Maybach S680 luxury sedan. (Photo by Sjoerd van der Wal/Getty Images)
Mercedes is the latest German auto giant to cut its profit forecast, flailing against a weakening European market, more competition in China, and struggling sales of electric vehicles.
German carmakers will have to seek collaboration deals with Chinese manufacturers to bridge the technology gap, one analyst said.
Mercedes cuts its profit forecast for 2024 to a range of 7.5 to 8.5%, from a previous expectation of up to 11%. Earlier in September BMW slashed its profit forecast to as low as 6% compared with its previous estimate of 8 to 10%.
Investment researcher Jefferies, in a report entitled “Stormy Weather at Mercedes”, said the cut was not unexpected, but the scale of it was.
Investors seemed less irked by BMW’s decision because it was linked to a single, quantifiable problem – a 1.5 million vehicle recall to fix faulty brakes – but BMW also warned about deteriorating conditions in China.
Multi-brand Volkswagen is feeling the pressure and has been forced to consider closing factories for the first time in its 87-year history. VW needs to radically increase its sales of EVs next year or face big fines for offending the European Union’s carbon dioxide emissions rules.
GlobalData has been relentlessly cutting its sales forecast for Western Europe. Four months ago it was forecasting just under 5% growth. Its latest forecast says there will be a slight contraction with sales falling 0.4% compared with last year, as the total for 2024 peaks out at 11.51 million.
According to Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR), German automakers have been asleep at the switch and fallen behind in the development of EVs, their batteries and software. Governments have made the problem worse.
“China is increasingly becoming the biggest test of the last 50 years. More than half of new cars in China are electric (it’s well under 20% in Europe). Germany and Europe have missed this. Industrial policy in Berlin and Brussels has exacerbated the problem,” Dudenhoeffer said in a statement assessing the Mercedes profit warning after similar action at BMW, and VW’s restructuring plan.
Dudenhoeffer said the Chinese market’s huge scale – 1.3 million EVs will be sold in Europe this year, compared with around 7 million in China – means Chinese EV makers have a huge cost advantage.
“Politicians in Brussels and Berlin have squandered our home advantage,” Dudenhoeffer said.
The Mercedes-Benz S-class cabriolet. (Photo credit DANIEL ROLAND/AFP via Getty Images)
The Financial Times Lex column said upmarket German automakers are having a bad time in China where an ailing property market has curbed spending on top-of-the-range vehicles like the Mercedes S-Class and Maybach. Prices for the Maybach in Europe start close to $200,000 after tax.
Lex doesn’t see much chance of an economic revival in China.
“There’s little hope of a real estate revival in China. And the competition in electric vehicles and combustion engine cars may even increase as growth slows. Moreover, if the European Union goes ahead with plans to slap import levies on Chinese EVs, then the higher-end cars that Mercedes ships to China, like the Maybach, could suffer from counter-tariffs. The road ahead looks treacherous,” Lex said.
The same reasoning applies to BMW, and VW’s Audi, Porsche, Bentley and Lamborghini subsidiaries.
Investment researcher Bernstein, in a report entitled “Mercedes – China weakness triggers another profit warning”, said Mercedes seemed a bit tentative compared with BMW.
“Mercedes was cautious not to provide any updates on 2025 or beyond, simply saying that they would provide an update later in the year. However, this is in stark contrast to BMW, which clearly stated that they expect to return to their strategic margin corridor by 2025,” the report said.
Dudenhoeffer said German automakers need to take a couple of strategic decisions. They must spend more money on their businesses in China to bridge the costs gap, and seek partnerships to narrow the technology gap.
“The only thing that German manufacturers can do is to invest even more in China to build up and expand development centers and production for electric cars. EV technology comes from China now and it has a “natural competitive advantage. Just as we have natural competitive advantage with the combustion engine.”
“Even more cooperation with China, even more cooperation with suppliers and car manufacturers is the only way to make up the lost ground,” Dudenhoeffer said.
