dpa
Berlin
German car manufacturer Mercedes-Benz suffered a profit slump in the third quarter due to weakness in the crucial Chinese market.
The results released on Friday plummeted by about half, primarily because the business with passenger cars was disappointing due to intense competition in China and the generally weak economic situation.
"The financial results of the third quarter do not meet the standards we set for ourselves at Mercedes-Benz,” chief financial officer Harald Wilhelm said in a statement. The aim is to focus even more on costs and efficiency, he said.
Already in September, management had significantly lowered profit expectations for 2024. Since the year-high of over €77 in April, the share price has dropped by approximately a quarter.
Wealthy Mercedes customers became frugal Analysts had already expected a significantly poorer quarter following the warnings.
However, they did not anticipate that Mercedes would achieve only a 4.7 percent operating profit margin in the core business with passenger cars before interest, taxes and special effects. A year earlier, it had been 12.4 percent.
Mercedes is experiencing difficulties, particularly in China, because its expensive models are not performing as well as expected, and there is no improvement on the horizon for the current year.
Expensive cars are the core element of the strategy of group chief executive Ola Källenius and have driven the company’s return on sales to record highs in recent years.
However, with the economic downturn in China, particularly in the real-estate market, wealthy Mercedes customers have unexpectedly become frugal. Competition in China growing Competition from domestic car manufacturers in China, where German manufacturers have previously experienced years of guaranteed growth, is also increasing.
In the electric sector, which is rapidly growing in China, Mercedes is still waiting for a breakthrough success with its models like the EQS, the all-electric counterpart to the S-Class.
Mercedes spent hundreds of millions of euros in total in the third quarter to reduce the stocks of electric cars on dealers’ lots through discounts and support sales in China with subsidies, finance chief Wilhelm explained.
The forecast reduction in September was already the second time this year that management had to dampen profit expectations.
Before the weekend, Mercedes consequently also lowered its sales forecast for the entire group and the sales forecast for the passenger car division - both are now expected to be slightly below last year’s level rather than at the same level.
Mercedes sold 503,573 passenger cars in the third quarter, which was 1.4 percent fewer than a year earlier. However, the carmaker could not achieve such high prices and sold a smaller share of more expensive cars, causing profits to plunge.
Important metric for investors looks better Mercedes performed better than generally expected in terms of free cash flow in the industrial business - calculated without financial services.
This metric is important for investors because Mercedes plans to use the additionally available free funds for share buybacks in addition to the regular dividend.
Wilhelm spoke of a "solid cash flow” slightly above the value from a year ago at €2.39 billion, particularly thanks to reduced inventories, which tie up capital.
Results in numbers For the three-month period, Mercedes-Benz posted a net profit of€1.719 billion ($1.86 billion), or €1.81 per share, which is lower than the €3.719 billion, or €3.44 per share, recorded for the same period last year.
EBIT fell to €2.517 billion from the previous year’s €4.842 billion.
The group’s revenue for the quarter was €34.528 billion compared with €37 billion in 2023.
Revenue from the Mercedes-Benz cars division was €25.602 billion, down from the previous year’s €27.131 billion. Sales of Mercedes-Benz cars in the quarter were at 503,573 units, fewer than the 510,564 units a year ago.
Mercedes-Benz vans generated revenue of €4.657 billion, compared with €4.939 billion a year ago. The company sold 91,063 Mercedes-Benz vans, lower than the 105,083 units a year ago.
Revenue from Mercedes-Benz’s mobility division decreased to €6 billion from last year’s €6.302 billion.
Mercedes-Benz cars reaffirmed its annual adjusted return on sales of 7.5 percent to 8.5 percent, while the Mercedes-Benz vans division still anticipates its full-year adjusted return on sales to be 14 percent to 15 percent.
Mercedes-Benz mobility confirmed its annual adjusted return on equity in the range of 8.5 percent to 9.5 percent.