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Mercedes-Benz saw its third-quarter earnings in the core car division plummet by 64%, significantly missing analysts’ expectations. The decline is attributed to shrinking demand for luxury vehicles in China, with the automaker adjusting its outlook and planning further cost cuts to offset losses.
Mercedes’ Q3 Earnings Hit by Model Revamp Costs and Market Challenges, Despite Industrial Cash Flow Growth
German premium automaker Mercedes-Benz on October 25 said third-quarter earnings in the core car division plunged by 64%, massively missing analysts' estimates, as Chinese consumers continued to cut back on luxury goods in a weakening economy.
"The Q3 results do not meet our ambitions," CFO Harald Wilhelm said in a statement, adding that the group will step up cost cuts.
According to Mercedes, the earnings from July to September were adversely affected by model revamp costs and a challenging market, particularly for the new G-Class SUV variants scheduled to be released in the upcoming quarter.
Annual car sales are expected to be marginally lower than in previous years, and fourth-quarter sales will be consistent with those of the third quarter.
The industrial business's ongoing cash flow generation, which increased by 2% year-over-year to 2.39 billion euros ($2.59 billion) in the quarter, was a rare bright light in the results, per Reuters.
The car unit's adjusted earnings before interest and taxes (EBIT) decreased to 1.2 billion euros, lower than the LSEG's average estimate of a 3.6% decline to 3.19 billion euros.
Mercedes-Benz Faces Profit Declines Amid Chinese Market Weakness and Looming EU Tariffs on EVs
Ola Kaellenius, Mercedes-Benz's CEO, has cautioned that Chinese consumers are exceedingly cautious about making substantial purchases. A local real estate crisis and long-standing economic weakness have resulted in significant uncertainty for consumers.
During the third quarter, the luxury car manufacturer reduced its full-year profit margin objective twice, joining many European competitors attributing their declining profits and margins to a weakening Chinese car market.
The results were released amid negotiations between Brussels and Beijing regarding the impending tariffs on Chinese electric vehicles (EVs) entering Europe. This situation poses a significant challenge for Europe's car manufacturers, who rely heavily on China, as they are concerned about the possibility of retaliation.
Mercedes-Benz, which is majority-owned by China's Beijing Automotive Group Co Ltd and Geely (GEELY.UL) Chair Li Shufu, has referred to the tariffs as a "mistake" and requested that the European Commission postpone their implementation to facilitate additional negotiations regarding a potential agreement.
