Daimler headquarters in Stuttgart
The brand’s wholesale sales slumped by more than a fifth in the first five months of 2020.
(Photo: Imago)
Munich Daimler is not that Lufthansa. Neither does the carmaker foreseeably fly out of the Leading index Dax, As a result of the corona pandemic, the Swabians still urgently need help from the state.
On the contrary, they were lucky enough to “survive a crisis of the century without running out of liquidity,” stated Daimler-Boss Ola Källenius on a union webcast last week IG metal.
In fact, at the beginning of the year, Daimler still had a comfortable liquidity buffer of almost EUR 24 billion gross and around EUR 11 billion net in the industrial business. But that was it with the good news.
When Källenius approaches the shareholders for the first time as CEO at the virtual general meeting of Daimler on Wednesday at around ten o’clock, the Swede, by birth, will prepare investors for lean times.
After all, the wholesale sales of the brand with the star slumped by more than a fifth in the first five months of 2020, the tapes stopped in factories around the world for weeks.
A clear loss seems inevitable in the half year, the free cash flow will be in the minus with billions. Rapid improvement is not in sight due to the still weak demand and the considerable excess capacity in the production network.
Källenius is now facing this new reality and is tightening the austerity course. “The aftereffect of Covid will lead to painful adjustments,” the Scandinavian announced in an interview with trade unionists.
From top managers down to simple mechanics, salaries would have to be “drastically” cut. The reduction of up to 15,000 of the 300,000 jobs worldwide already sealed before Corona expected to add thousands more jobs.
The Smart plant in Hambach, France, is for sale. 2,000 IT employees are to be outsourced to external companies, Daimler AG as a holding company with 6,000 employees is likely to be trimmed down.
The three new divisions – cars, trucks and mobility services – which have only been legally independent since November 2019 – thus gain more power. Expensive collaborations like those with BMW autonomous driving is on ice.
Mercedes car sector weakens
At Daimler, sometimes even more rigorous savings are required than with some of the competitors. The reason: The company was already weakening before the corona crisis. In the comparison of the three major German vehicle manufacturers, Stuttgart’s balance sheet is significantly worse than Volkswagen or BMW.
Daimler again achieved record sales of EUR 173 billion last year. But because of excessive costs, the group’s profit fell in parallel by two thirds – to only 2.4 billion euros.
Net liquidity decreased by EUR 5.3 billion and equity shrank by EUR 3.2 billion to EUR 62.8 billion.
Because the balance sheet total rose from 282 to 302 billion at the same time, the equity ratio dropped from 22.2 to 20.3 percent. Provisions skyrocketed from $ 23 billion to $ 30.7 billion, and net debt rose nearly 12 percent to $ 134 billion.
Everything was planned differently. According to an internal management bonus document, the company actually announced an EBIT target of 13.5 billion euros for 2019.
In fact, Daimler was only able to generate earnings before income from investments, interest and taxes of 4.3 billion euros. This corresponds to a decline of 61 percent compared to 2018.
In particular the core division Mercedes Benz Cars, which is responsible for more than half of group sales with 94 billion euros, disappointed. Instead of an announced EBIT of 7.7 billion euros, the star troop only managed an operating profit of 3.4 billion euros.
As a result, the return on sales fell from 7.8 to 3.6 percent. For comparison: the claim of the premium manufacturer is at least more than twice as high.
Only the small van segment performed even weaker than the auto business. The former earnings pearl reports a loss of 3.1 billion euros. In 2020, CEO Källenius quickly took over the responsibility for the area himself and docked the vans with the Mercedes car division.
Dissipate economies of scale
By contrast, the results in the truck division were comparatively solid, which, despite falling sales, was able to increase its sales by five percent to over 40 billion euros.
With a margin of 6.1 percent, the world’s largest manufacturer of commercial vehicles is lagging behind competitors like Volvo Trucks (11.1 percent) or Scania (11.5 percent), however, is still far behind.
The Daimler truck business exemplifies a fundamental problem for the entire group: The Swabians regularly fail to translate their economies of scale into improved profitability. It is also correct, however, that the operating result of Daimler 2019 was negatively oversubscribed by a whole series of one-off effects.
This includes more than four billion euros in costs for recalls and fines in the diesel scandal. The end of the production of the flopped platform truck X-Class costs 828 million euros.
405 million euros were due for the exit from the car sharing business in North America. In total, Daimler’s operating profit in 2019 was impacted by special factors by almost 6.7 billion euros.
If one excludes these effects, the adjusted operating profit amounts to 10.3 billion euros. That is not a bad thing, but does not really do justice to a proud company like Daimler, CEO Källenius believes. The 51-year-old is a realist. A quick turnaround in earnings was already ruled out before Corona.
In order to catch up with electromobility and digitalization, Daimler will have to keep investments in research and development high in the coming years.
In 2019, they reached a new high of 9.7 billion euros. For 2020, Källenius promises to invest up to 15 billion euros in research, development and new systems in the passenger car sector alone, despite Corona.
“We are trying to protect the seed potatoes that we need for the future harvest,” comments Källenius. The money is flowing, among other things, into two key projects – on the one hand in setting up an own software platform and on the other hand in a power offensive Tesla to teach fear.
Four electric models “decisive for war”
If the EQC was the first electric SUV from Mercedes to be squeezed onto a combustion engine kit, the future luxury flagships EQS and EQE will roll off the assembly line from 2021 on the “Modular Electric Architecture” (MEA) specially designed for Stromer.
The two electric limousines should not only shine with ranges beyond 700 kilometers, but also each receive an SUV branch, according to corporate circles. A Daimler spokesman did not want to confirm or deny this information.
Internally, however, it is clear to everyone: The four top Stromer based on the MEA platform, which is internally called “EVA II”, are something like the fate models of CEO Källenius. “If these are not must-haves, things will get tight,” predicts one manager. “These models are decisive for the war,” adds another manager.
Daimler started late into the electrical age and now urgently needs successes in order to quickly reduce the high CO2 levels in Starfleet and to avoid impending EU fines.
At the same time, Mercedes’ electricity offensive also decides whether Daimler will get more support and confidence from the capital market again. Many investors are upset. Daimler CEO Källenius has had to issue a total of four profit warnings since taking office in May 2019.
Daimler continues to pay the dividend
Consequence: The Stuttgart are still one of the largest underperformers in the Dax. With a market capitalization of around 41 billion euros, Daimler is currently only worth about a fifth as much as the Californian electric car pioneer Tesla.
As the first confidence-building measure, Daimler is now sticking to the payment of a dividend. Although the profit sharing will be significantly reduced – from 3.25 euros to only 90 cents per share. This means that the dividend at Daimler shrinks to the lowest level since the financial crisis more than a decade ago.
In the coming year, the distribution could possibly be completely eliminated. In any case, the Daimler Board of Management does not dare to make a detailed profit forecast for 2020 in the current situation. But the group benefits from the fact that Mercedes is still the most valuable luxury car brand in the world, according to the consulting firm Interbrand.
Daimler scored particularly well in China, the world’s largest vehicle market. In 2019, the brand with the star in the Far East sold around 694,000 units for the first time more cars than its rivals Audi and BMW.
And while sales in Europe and the USA are currently sluggish, Mercedes delivered more vehicles in China in May than in the previous year.
More: Daimler plans to sell Smart plant in Hambach – French government intervenes