Mercedes-Benz Anticipates Margin Decline as Market Competition Intensifies
Mercedes-Benz Group AG forecasts a carmaking margin drop to as low as 6% in 2023, impacted by fierce industry competition and fluctuating global auto demand.
To mitigate expenses, the automaker aims to reduce production costs by 10% through 2027 and collaborate with suppliers to lower material costs. This comes after Mercedes' pledge to enhance margins to a minimum of 8% less than three years ago.
Shares of Mercedes have declined by 3.8% in Frankfurt and approximately 10% over the past year. CEO Ola Källenius emphasized the need for efficiency measures and characterized the changes as a path towards becoming "slimmer, faster, and stronger."
The company has prioritized its high-end vehicle offerings over entry-level models like the A-Class. However, weak demand for top-end models in China has challenged this strategy.
Mercedes' operating earnings have decreased by 30% in the previous year, with the carmaking margin falling to 8.1%. The company anticipates a margin range of 6-8% in 2023.
Other automakers such as Porsche AG and BMW AG have also experienced margin reductions due to increased competition in China and high EV development costs.
CFO Harald Wilhelm projects a margin recovery to at least 10% by 2027 through staff and R&D cost optimization. Despite heavy investments, European automakers, including Mercedes, have witnessed declining demand for electric vehicles, leading to cost-cutting measures and a shift towards combustion-engine enhancements.
Mercedes faces additional challenges with rising trade tensions and President Trump's proposed 25% tariff on imported automobiles. The company imports approximately 63% of the vehicles it sells in the US.