Mercedes’ China motor hits one of two roadblocks
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Neil Unmack
LONDON, Sept 20 (Reuters Breakingviews) -Mercedes-Benz’s MBGn.DE all-important China motor is sputtering. The $64 billion luxury carmaker warned of collapsing earnings and free cash flow this year, as a real estate bust in the People’s Republic means less demand for upmarket rides. A deteriorating political backdrop suggests the worst may not yet be over.
Mercedes’ profit warning on Thursday night managed to be both unsurprising and shocking at the same time. The Maybach maker derives over a third of its car sales from the Middle Kingdom, while Bernstein analysts reckon the country’s share of total operating profit stood at 37% last year. Yet Chinese sales are hurting from a property-market slowdown and a vicious price war in electric vehicles. Rival BMW BMWG.DE had already warned on profit earlier this month.
Still, the magnitude of the cut that Mercedes CEO Ola Källenius announced was unexpected. Having promised a 2024 operating margin of 10% to 11% in its automotive unit as recently as July, Källenius now expects a margin of 7.5% to 8.5%, with the ratio in the second half of the year as low as 6%. Back in 2022, the equivalent figure was 15%.
Like many carmakers, who are grappling with competition and the shift to electric vehicles, Mercedes has been keeping investors happy by returning capital, with buybacks and dividends of around 12 billion euros planned this year. Yet 2024 free cash flow may be just 8.5 billion euros now, analysts reckon, potentially affording less room for buybacks next year. Alternatively, Källenius could keep the capital-return party going by selling some of his 35% stake in 26-billion-euro Daimler Truck DTGGe.DE, which the parent group spun off in 2021.
The good news for investors is that Mercedes’ stock could be cheap if China bounces back. Assuming that the bottom line recovers next year to where the carmaker had previously expected it to be, at 11.5 billion euros, the group would be trading on less than 5 times forward earnings after Friday’s roughly 7% fall. That compares with a long-term average of around 7, using LSEG data.
Yet there’s little hope of a real estate revival in China. And the competition in electric vehicles and combustion-engine cars in the Middle Kingdom may even increase as growth slows and the country’s ageing demographics kick in. Citigroup analysts estimate that Mercedes is selling electric vehicles in China at a 37% discount to the recommended retail price, up from 18% last September. Moreover, if the European Union goes ahead with plans to slap import levies on Chinese EVs, then the higher-end cars that Mercedes ships to China, like the Maybach, could suffer from counter-tariffs. The road ahead looks treacherous.
Follow @Unmack1 on X
CONTEXT NEWS
Mercedes-Benz Group on Sept. 19 lowered its outlook for the year, citing a “deterioration of the macroeconomic environment” in China.
The group’s 2024 operating profit margin in its cars division is now expected to be between 7.5% and 8.5%, down from an expected 10% to 11%. The margin in the second half of the year will be 6%, it said. Mercedes-Benz’s group operating profit and free cash flow will be “significantly below” the level in 2023.
Mercedes-Benz shares were down around 7% as of 0800 GMT on Sept. 20.
Graphic: Shrinking price-earnings ratios of Mercedes and BMW https://reut.rs/3XwsTXm
Editing by Liam Proud and Oliver Taslic
면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.
온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.
이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.
