Automakers

Mercedes hikes profit goal with demand outstripping supply

Mercedes EQ cars in showroom
Top-end luxury sales at Mercedes lifted revenues, making up 15 percent of overall cars sales in the third quarter. Mercedes EQ electric cars are pictured in a showroom. (BLOOMBERG)
R
By:
Reuters
October 26, 2022 07:55 AM

Mercedes-Benz raised its expectations for a second time this year with demand still outrunning supply even as economic gloom spreads.

Robust sales especially for high-end models and healthy pricing are underpinning the outlook in the face of surging energy costs and persistent supply chain problems, it said on Wednesday.

Mercedes also reported a third-quarter jump in earnings before interest and tax to 5.2 billion euros ($5.2 billion).

The company now sees group profit significantly higher than a year ago, up from a projection of a “slight” gain.

For the core car division, the adjusted return on sales is expected to rise to as much as 15 percent, up from as much as 14 percent. Mercedes also raised the outlook for its vans division.

The maker of the EQS sedan is working through pent-up demand after severe shortages of semiconductors restricted production for months.

With some of the supply-chain pressure now easing, attention has shifted to how resilient automakers will be in the face of a jump in interest rates, ongoing COVID-19 restrictions in China and the energy crisis in Europe.

At Mercedes’s main car division, returns climbed to 14.5 percent in the three months through September following a jump in deliveries.

Top-end luxury sales lifted revenues, making up 15 percent of overall cars sales in the third quarter.

"We are making the company more resilient and setting the pace for the months ahead, as we continue accelerating our transformation," chief financial officer Harald Wilhelm said in a statement.

Regional weakness

While Mercedes raised its guidance, record inflation and surging interest rates are hitting its business in the U.S. and Europe, where the company downgraded sales expectations.

The automaker now sees deliveries in the U.S. “significantly” lower than the prior year, compared with a slight decrease previously.

In Europe, sales will decline further from an already low level, a downgrade from an unchanged forecast.

Weaker U.S. and European markets are expected to be offset by significantly higher sales in China, where tax breaks for car purchases are set to boost demand after a series of stringent pandemic lockdowns.

Overall, Mercedes stuck to a projection for a slight rise in global deliveries for the year.

Earlier this month, the automaker pledged to deliver solid returns next year even as the global outlook is set to take a turn for the worse, as part of a plan to shift its model portfolio upmarket where buyers are less affected by economic cycles.

By 2025, Mercedes is targeting an operating margin goal of 14 percent in a favorable environment and no lower than 8 percent in poor conditions.

Reuters contributed to this report

Staying current is easy with newsletters delivered straight to your inbox.