Amidst the escalating slowdown of the Chinese economy, Mercedes-Benz has once again lowered its profit target in less than two months, causing the stock price of the world’s largest luxury car manufacturer to record its biggest drop in four years.
During trading in Frankfurt, the stock fell by 8.4%, marking the largest single-day decline since 2020. Mercedes-Benz’s profit warning has put pressure on the entire industry, with BMW also experiencing a 4.4% decrease.
The softening Chinese economy and the severe local real estate crisis have significantly impacted market demand, including automotive demand. The sales of Mercedes-Benz’s high-end models, especially the S-Class and Maybach sedans, have been severely affected, not only impacting Mercedes-Benz but also Volkswagen, Porsche, and BMW.
As a result, Mercedes-Benz has lowered its profit expectations for 2024, after having already reduced profit margin expectations in July for the same reasons.
CEO Ola Källenius stated during a conference call with analysts following the announcement, “How long will this situation continue? I do not know, but I remain cautious about the foreseeable future of the Chinese market.”
Mercedes-Benz now expects its adjusted sales return rate for 2024 to be between 7.5% and 8.5%, lower than the previous 10% to 11%, indicating an expected rate of around 6% for the second half of the year.
Consequently, the Earnings Before Interest and Taxes (EBIT) is now expected to be significantly lower than the previous year’s 19.7 billion euros (22 billion US dollars), which was initially anticipated to only experience a slight decline.
According to estimates from the London Stock Exchange Group (LSEG), Mercedes-Benz’s EBIT is projected to be 15.83 billion euros, and its industrial business free cash flow is also expected to be significantly lower than the previous year.
RBC analysts stated that despite investors anticipating a profit warning, they were still surprised by the announcement, especially given its scale and the absence of any cautionary comments prior to today’s news.
The company pointed out that with the ongoing downturn in the real estate industry, the macroeconomic environment in China has further deteriorated.
In a report, Oddo BHF analysts wrote, “China (markets) are turning into a nightmare.”
Due to the impact of the slowing Chinese economy and sluggish electric vehicle sales, BMW also revised down its full-year profit forecast last week.