Mercedes-Benz Electric Vehicle Battle: Luxury carmaker Mercedes-Benz is feeling the heat in the electric vehicle (EV) market. Fierce competition, aggressive price cuts, and supply chain disruptions have them concerned. They’re now expecting their adjusted return on sales for the cars division to potentially fall to the lower end of their 12-14% forecast. It’s a tough situation, and the pressure is showing with a decline in third-quarter earnings, affecting their financial outlook.
Harald Wilhelm, the Chief Financial Officer of Mercedes-Benz, voiced his concerns, describing the current EV market landscape as “brutal.” Established players are selling battery electric vehicles at prices comparable to, or even lower than, internal combustion engine cars, despite the higher production costs. This has left the company pondering other options to boost earnings, like their combustion engine portfolio. He emphasized that the status quo might not be sustainable for everyone.
Despite these challenges, Mercedes-Benz is committed to its EV targets but is exploring alternative revenue streams. While there have been discounts on some models in Germany during the fourth quarter, the company clarified that it doesn’t represent a shift in its pricing strategy, and their focus on maintaining premium pricing for margin growth remains unchanged.
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Financial markets reacted swiftly to these developments, with Mercedes-Benz shares taking a hit, dropping over 6% and hitting their lowest point in nearly a year. They were the biggest losers on the Eurozone blue-chip index. BMW and Volkswagen (VW) also saw declines, underscoring the challenges in the luxury car market’s EV sector.
The struggle in the EV market isn’t unique to Mercedes-Benz. Other automakers, including Ford and Tesla, have been slashing prices to boost demand. Mercedes-Benz, however, has largely stuck to its commitment to premium pricing.
In the third quarter, the company reported a 12.4% adjusted return on sales in its cars division. While their earnings before interest and taxes fell by 6.8% to 4.8 billion euros, and group revenue decreased by 1.4% to 37.2 billion euros. Sales for Mercedes-Benz dropped by 4%, with top-end sales down by 11%, partly due to model changes and supply shortages.
Mercedes-Benz recognizes the current market environment is “subdued.” However, they remain cautiously optimistic, believing that they may be “beyond the worst” when it comes to inflation and energy pricing, hinting at potential stabilization in the broader economic landscape. The road ahead is challenging, but the luxury automaker remains committed to navigating it.