Mercedes-Benz’s Profit Expectations Fall Sharply
On Tuesday, Mercedes-Benz lowered its adjusted sales return forecast for its flagship car division to 2%–3%, down from its previous forecast of up to 5%.
Mercedes-Benz Group AG has lowered its profit forecast due to declining sales in China and rising costs. The company made the move as other major German automakers, including Volkswagen AG and BMW AG, also reduced their profit expectations.
On Tuesday, Mercedes-Benz lowered its adjusted sales return forecast for its flagship car division to 2%–3%, down from its previous forecast of up to 5%. The company cited increasingly challenging market conditions in China and higher material costs in the fourth quarter as reasons for the decision.
The company also revised its previous expectation of significant growth and now expects group earnings before interest and taxes to remain broadly stable compared with the previous year. Following the announcement, Mercedes-Benz shares fell by as much as 5.4%, marking their sharpest decline in more than a month. The company's shares have lost more than a third of their value since the beginning of the year.
The situation highlights how quickly China has become a major challenge for German automakers. Declining sales and profits are limiting their ability to invest in restructuring their business models and developing new products.
The lower profit forecast is also likely to intensify scrutiny of CEO Ola Källenius's strategy of focusing on more expensive vehicles. Mercedes-Benz is facing difficulties in financing the launch of new models, restructuring its high-cost manufacturing operations in Germany, and protecting its brand position in China.