TLDR:
- Mercedes-Benz Q3 car division earnings dropped 64%, significantly missing analyst estimates
- Profitability margin fell to 4.7% from 12.4% last year, well below 8% target
- China’s economic slowdown and real estate crisis severely impacted luxury car sales
- Company plans to implement cost-cutting measures across the business
- Third-quarter revenue fell 6.7% to €34.53 billion, with net profit halving to €1.72 billion
Mercedes-Benz Group AG reported a decline in third-quarter earnings, with profits in its core car division plunging 64% amid weakening demand in China and intense market competition. The German luxury automaker’s financial results fell considerably short of analyst expectations.
The company’s third-quarter revenue decreased by 6.7% to €34.53 billion ($37.4 billion), while net profit dropped to €1.72 billion from €3.72 billion in the same period last year. The key profitability measure for the car division fell sharply to 4.7%, well below the company’s minimum target of 8% and last year’s 12.4%.
Chief Financial Officer Harald Wilhelm acknowledged the disappointing results in a statement. “The Q3 results do not meet our ambitions,” Wilhelm said, announcing that the company would intensify cost-cutting efforts and efficiency improvements across operations.
The Chinese market, traditionally a strong source of sales for Mercedes-Benz’s high-end vehicles, showed particular weakness. Consumer caution in China, exacerbated by ongoing economic challenges and a real estate crisis, has significantly impacted sales of luxury vehicles, especially the company’s top-end S-Class and Maybach models.
Model revamp costs also affected the quarterly results, particularly related to the new versions of the G-Class SUV scheduled for release in the next quarter. The company expects annual car sales to be slightly below the previous year’s levels, with fourth-quarter sales projected to remain similar to third-quarter figures.
Despite the overall decline, the company’s industrial business showed resilience in cash flow generation, reaching €2.39 billion in the quarter, a modest 2% increase year-over-year. This positive aspect provided some relief amid the otherwise challenging results.
Mercedes-Benz faces additional pressure from the ongoing trade discussions between Brussels and Beijing regarding potential tariffs on Chinese electric vehicle imports to Europe. As a company with significant Chinese shareholders, including Beijing Automotive Group Co Ltd and Geely Chair Li Shufu, Mercedes-Benz has voiced concerns about these tariffs.
The company’s adjusted earnings before interest and taxes (EBIT) in the car unit fell to €1.2 billion, significantly below analyst expectations of €3.19 billion. This decline reflects the broader challenges facing the luxury automotive sector.
Looking ahead, Mercedes-Benz expects some positive momentum in top-end vehicle sales for the fourth quarter, supported by the launch of new models, including both combustion engine and electric versions of its G-Class.
The van unit maintains its expected adjusted return on sales target between 14% and 15%, while the mobility unit’s adjusted return on equity target remains at 8.5% to 9.5%.
Analysts polled by FactSet had anticipated higher figures, with net profit expectations of €1.93 billion on revenue of €36.29 billion, highlighting the extent of the earnings miss.
The company has already reduced its cars unit’s adjusted return on sales target to between 7.5% and 8.5% and indicated that group earnings before interest and taxes will be significantly below last year’s level.
Mercedes-Benz’s industrial footprint and high operational costs, particularly in Germany where labor and energy costs are elevated, present ongoing challenges as the company navigates this difficult period.
The latest financial results come as the company continues its transition toward an all-electric future, requiring substantial investments in research and development while maintaining production of both electric and combustion engine models.
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