Mercedes faces tough competition in China, adjusts profit outlook

Mercedes-Benz has lowered its annual profit margin forecast following a challenging second quarter, marked by weak sales and earnings. The German automaker now anticipates an adjusted return on sales between 10-11%, down from the previous range of 10-12%. This adjustment comes as Mercedes contends with fierce competition in China and other market pressures.

The company’s group earnings before tax fell by 19% in the second quarter, highlighting the struggles faced by German automakers. The combination of lacklustre demand for electric vehicles (EVs), robust local competition in China, supply chain bottlenecks, and high interest rates has taken its toll.

“Mercedes is facing significant headwinds in China, a critical market for us,” said a company spokesperson. “However, we are optimistic that our new models will boost sales in the latter half of the year.”

Despite the hurdles, Mercedes expects plug-in hybrid sales to increase in the second half of 2024, driven by stronger demand in Europe and the U.S. for hybrid models, even as EV sales fall short of expectations. In the first half of the year, Mercedes reported a 6% drop in overall sales, with electric vehicle sales plunging 17%.

The company’s shares dipped by 1.4% in early trading following the revised forecast. Bernstein analysts noted that while some investors had anticipated a profit warning, the mere trimming of the margin forecast “will likely be met with relief.”

In the second quarter, Mercedes’ cars division achieved a 10.2% return on sales, though its adjusted earnings fell below analyst expectations. “Overall, Mercedes’ execution has improved, but overall sales and top-end sales mix have remained weak,” Reuters reported.

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