EV market pressures Mercedes' car sales margins

author: FutureCar Staff    

Mercedes-Benz is facing challenges in the electric vehicle market, with heavy price cuts and supply chain issues affecting its third-quarter earnings. The luxury carmaker expects to hit the lower end of its adjusted return on sales forecast for the cars division, which is 12-14 per cent. Despite this, the company remains committed to its EV targets and could potentially improve earnings by focusing on its combustion engine portfolio if margins on EVs continue to be lower than expected.

The competition in the electric vehicle market is described as "brutal" by Harald Wilhelm, the chief financial officer of Mercedes-Benz. Some traditional players are selling battery electric vehicles at lower prices than internal combustion engine cars, despite the higher production costs. Wilhelm believes that the current status quo in the market may not be sustainable for everyone.

Discounts offered on certain models in Germany in the fourth quarter do not represent a shift in the carmaker's pricing strategy. Mercedes-Benz aims to keep prices high to focus on boosting margins rather than volume. However, the company's shares have fallen by over 6 per cent, the lowest in almost a year.

Other carmakers, such as Ford and Tesla, have been reducing prices throughout the year to stimulate demand. Mercedes-Benz, on the other hand, has largely resisted following suit.

In the third quarter, Mercedes-Benz reported a 12.4 per cent adjusted return on sales in its cars division. The group's earnings before interest and taxes (EBIT) fell by 6.8 per cent to 4.8 billion euros, slightly above consensus. However, earnings from vans increased by 44 per cent to 715 million euros, with an adjusted return on sales of 15 per cent. Group revenue was down 1.4 per cent at 37.2 billion euros.

The market environment is described as "subdued" by Mercedes-Benz, but the company believes that the worst is behind them in terms of inflation and energy pricing. However, higher inflation, foreign exchange headwinds, and supply chain-related costs impacted the third-quarter earnings. Porsche also warned about the impact of macroeconomic woes on the luxury sector in its Q3 results.

In the third quarter, Mercedes-Benz experienced a 4 per cent drop in overall sales, with top-end sales declining by 11 per cent. This was partly due to model changeovers and a shortage in 48-volt systems supplied by Bosch. Car revenue decreased by 3.8 per cent due to the fall in deliveries, but the average selling price remained stable.

Looking ahead, Mercedes-Benz expects the sales rate to remain consistent in the fourth quarter compared to the first three quarters. The company has not adjusted its full-year sales target, which aims for no year-on-year change.

The conversion rate between euros and dollars is 0.9485.

FutureCar Staff