Mercedes-Benz announced plans to ramp up cost-cutting measures after its third-quarter earnings halved, impacted by reduced demand and increased competition in China. The luxury automaker reduced its annual profit margin target twice in Q3, joining other European brands facing profit losses due to a slowing Chinese car market. Union Investment, a top Mercedes shareholder, has urged the company to revise its strategy, as demand for luxury vehicles is shifting towards affordable electric models in China—a segment where Mercedes has limited options.
Mercedes has opted out of the ongoing price war in China, sticking to its “value over volume” strategy, hoping that new model releases will bolster sales in 2024. Portfolio manager Moritz Kronenberger expressed doubts, however, as the current market does not match the automaker’s capacity and demand expectations, particularly with Chinese consumers focused on affordable EVs.
Mercedes shares fell by 1.6% following the announcement, a decline that also impacted stocks in peers like BMW and Volkswagen. Year-to-date, Mercedes shares are down around 8%, slightly outperforming other German automakers but still lagging behind the DAX index. The pan-European autos index also recorded a 10% year-to-date drop, making it Europe’s poorest-performing sector.
Mercedes’ CFO Harald Wilhelm confirmed that cost-cutting would be “tighter and tougher,” though he declined to specify details. The automaker’s adjusted return on sales for its car division dropped to 4.7% in Q3, the lowest since the pandemic. Challenges included reduced S-Class model sales in China and rising costs for new model rollouts, such as the G-Class SUV, set for release in the next quarter.
In light of recent earnings, Mercedes is also reconsidering its 35% stake in Daimler Truck, which remains a valuable asset, with shares rising 4% following Wilhelm’s remarks. CEO Ola Kaellenius highlighted ongoing caution in Chinese consumer spending, driven by economic uncertainty and real estate challenges. Stifel analysts pointed to waning Chinese interest in German luxury brands as a broader issue.
