German Automaker Mercedes-Benz Reports Significant Earnings Drop

By Andrey Sychev
(Reuters) – German premium automaker Mercedes-Benz (OTC:MBGAF) announced on Friday that its third-quarter earnings in the core car division fell by 64%, significantly missing analysts' expectations as Chinese consumers continue to reduce spending on luxury goods amid economic decline.

CFO Harald Wilhelm commented, "The Q3 results do not meet our ambitions," and indicated that the company would intensify cost-cutting measures.

During July to September, earnings were impacted by expenses related to model revamps and a challenging market, particularly for the newly updated G-Class SUV, which is expected to debut in the upcoming quarter.

Mercedes anticipates annual car sales to be slightly lower than the previous year, with fourth-quarter sales expected to be consistent with those in the third quarter.

One positive aspect was the industrial business's cash flow, which reached 2.39 billion euros ($2.59 billion) in the quarter, representing a 2% year-on-year increase.

Adjusted earnings before interest and taxes (EBIT) for the car unit fell to 1.2 billion euros, compared to an average analyst estimate of 3.19 billion euros, indicating a 3.6% decrease.

CHINA WOES

CEO Ola Kaellenius expressed concerns regarding Chinese consumers who are hesitant to make large purchases due to ongoing economic struggles and a local real estate crisis, resulting in significant consumer uncertainty.

Mercedes-Benz has revised its full-year profit margin target down twice during Q3, joining a trend among European rivals attributing profit and margin declines to a weakening Chinese car market.

These results arrive as discussions between Brussels and Beijing continue regarding impending tariffs on imports of Chinese EVs into Europe, presenting complications for Europe’s car industry, which is heavily reliant on the Chinese market due to fears of potential retaliation.

Mercedes-Benz, with Beijing Automotive Group Co Ltd and Geely Chair Li Shufu as its leading shareholders, labeled the tariffs a "mistake" and urged the European Commission to postpone their enforcement to facilitate additional negotiations toward a favorable resolution.

($1 = 0.9240 euros)