EV market pressures Mercedes car sales margins

Home > Industry Analysis > Content

【Summary】Mercedes-Benz expects lower profits due to intense competition and supply chain issues in the electric vehicle (EV) market. The company's CFO stated that if EV margins remain lower than expected, they may focus on increasing returns from their combustion engine portfolio. The market has seen heavy price cuts, with traditional players selling EVs below production costs. Mercedes-Benz reported a 12.4% return on sales in their cars division in Q3. Overall group revenue was down 1.4% at €37.

FutureCar Staff Oct 26, 2023 9:30 AM PT

EV market pressures Mercedes car sales margins

Mercedes-Benz announced that it is likely to reach the lower end of its 12-14 per cent adjusted return on sales forecast for the cars division due to a challenging electric vehicle market. The company stated that heavy price cuts and supply chain issues have created a "brutal" environment for EVs. Despite this, Mercedes-Benz remains committed to its EV targets and may focus on improving returns from its combustion engine portfolio if EV margins continue to be lower than expected.

The chief financial officer of Mercedes-Benz, Harald Wilhelm, expressed concern about the sustainability of the current status quo in the EV market. Some traditional players are selling battery electric vehicles at prices below those of internal combustion engine cars, despite higher production costs. Wilhelm emphasized that the discounts offered in Germany during the fourth quarter do not represent a shift in the company's pricing strategy.

The news of Mercedes-Benz's challenges in the EV market had a significant impact on its shares. The stock fell more than 6 per cent, reaching its lowest point in almost a year. BMW and VW also experienced declines in their share prices.

Throughout the year, carmakers, including Ford and Tesla, have been reducing prices to stimulate demand in various markets. However, Mercedes-Benz has generally resisted following suit. In the third quarter, the company reported a 12.4 per cent adjusted return on sales in its cars division.

Mercedes-Benz's group earnings before interest and taxes (EBIT) fell by 6.8 per cent to 4.8 billion euros ($5.1 billion) in the third quarter. Despite this decline, the company's van division witnessed a significant increase in earnings, jumping 44 per cent to 715 million euros with an adjusted return on sales of 15 per cent. Group revenue decreased by 1.4 per cent to 37.2 billion euros.

The market environment was 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 affected the company's third-quarter earnings. Mercedes-Benz also acknowledged that the luxury sector, as highlighted by Porsche, is not immune to macroeconomic challenges.

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 decrease was partly attributed to model changeovers and a shortage in 48-volt systems supplied by Bosch. Although car revenue dipped by 3.8 per cent due to the fall in deliveries, the average selling price remained stable.

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

($1 = 0.9485 euros)