Mercedes-Benz’s luxury strategy paid off for the automaker in the difficult second quarter. In its passenger car division, Mercedes achieved a return on sales of over 14 percent after 15 percent in the first quarter. Overall, sales increased by seven percent to EUR 36.4 billion, and the EBIT margin rose by six percent to EUR 4.6 billion. The Mercedes share rose by more than two percent on Wednesday. The second quarter was characterized by the lack of semiconductors, the strict Covid lockdown in the important sales market China and rising raw material prices as a result of the Russian invasion of Ukraine. That didn’t go unnoticed by Mercedes. In the past quarter, the carmaker sold around 481,000 vehicles worldwide, around 30,000 fewer than in the same quarter last year. In April in particular, sales fell by more than 27 percent, weakened by strict corona lockdowns in China.
However, higher sales are no longer a priority for the Stuttgart carmaker. The company adapts its range of models. Among other things, the volume model A-Class will be deleted. In the future, Mercedes wants to focus on wealthy customers with high-priced vehicle models. The company expects higher profitability from this, despite lower production figures.
Mercedes is therefore confident of exceeding the targets for the year. After an EBIT growth of around 18 percent and a return on sales of over 15 percent in the first half of the year, the Stuttgart-based car manufacturer expects a return on sales of between twelve and 14 percent in its car division, instead of 11.5 to 13 percent.
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This should be made possible by “positive price enforcement”, as Mercedes calls it. In plain language this means: Higher prices. According to an analysis by Ferdinand Dudenhöffer, Director of the Center Automotive Research, the average price of a Mercedes car has risen by 22 percent to 55,428 euros in the past 15 months.
According to Mercedes CFO Harald Wilhelm, the carmaker is still pursuing the goal of passing on higher prices to customers. This is one of the reasons why the entire group is assuming significantly higher sales and a slightly higher return by the end of the year, without naming specific figures.
Mercedes lowers temperatures in factories to save gas
The second half of the year will continue to be characterized by macroeconomic uncertainty. Above all, Mercedes will have to change the energy supply for the German plants in the short term. “We want to reduce our natural gas consumption in Germany by 50 percent this year,” said Mercedes boss Ola Källenius when presenting the figures.
Among other things, the carmaker will reduce the temperature in its factories, says Källenius. In addition, for example, the paint shop, one of the most gas-intensive production stations in car manufacture, at the Sindelfingen site, where Mercedes produces the electric luxury sedan EQS and the S-Class, can also be operated without gas if necessary. In the short term, Mercedes will also replace gas with oil. In the long term, the gas-dependent production processes are to be supplied with electricity from renewable energies.
Källenius admits that this will trigger additional costs. The Mercedes boss does not reveal how high these are. However, the free cash flow in the second quarter gives an idea of the impact that higher raw material prices and the ongoing shortage of semiconductors will have on the carmaker’s finances. In the past quarter it fell from 2.2 to 1.4 billion euros, which corresponds to a minus of 34 percent.
Despite all the challenges in the economy worldwide, there are good reasons to be optimistic, explained Källenius. “Above all, the continued strong demand from our customers worldwide and other important new products.”
Chip shortage, rising interest rates & inflation: stress factors in the 2023 financial year
The Mercedes boss assumes that the lack of semiconductors will also shape the 2023 financial year. Other negative factors are the very high inflationary pressure, rising interest rates and the uncertainty in the course of the corona pandemic, especially in China.
Despite strong half-year figures, the Mercedes share cannot differentiate itself from its direct competitor BMW. On the contrary: over a six-month period, Mercedes lost almost 21 percent, BMW only 18 percent.
The luxury strategy may also be reflected in the balance sheet, but Mercedes recently had to make more improvements to its vehicles. The carmaker is faced with numerous recalls this year due to quality defects. Most recently, Mercedes had to bring almost a million vehicles back to the workshops worldwide because of corroding brake boosters.
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