Mercedes raises outlook; cuts gas use amid Russian supply squeeze

BERLIN -- Mercedes-Benz expects a significant rise in revenues and slightly higher earnings in 2022 on the back of strong vehicle prices and model mix even as the company warned of economic turbulence due to Europe’s worsening energy crisis, high inflation and protracted supply-chain problems.

The company on Wednesday raised its outlook after an 8 percent jump in second-quarter adjusted earnings to 4.9 billion euros ($4.97 billion). Mercedes had previously said it expected only slightly higher revenues this year and earnings equal to last year.

Still, uncertainty due to the war in Ukraine, high inflation, interest rate rises, and the pandemic, particularly in China, could all weigh on the business, Mercedes said.

"We are enhancing our vigilance and resilience to manage increasingly complex macroeconomic and geopolitical challenges," CEO Ola Kallenius said in a statement. "At the same time, we have good reasons to remain confident, with ongoing strong demand, a fresh vehicle portfolio and further key product launches this year."

In the latest quarter, Mercedes saw an adjusted return on sales of 14.2 percent in the Mercedes-Benz Cars division, up from 12.8 percent in the same quarter last year, while returns in its vans division fell slightly to 10.1 percent from 11.4 percent last year.

Looking forward, it raised its expected adjusted earnings margin for its cars division in the second half to 12 percent to 14 percent from 11.5 percent to 13 percent previously.

The first half saw a 15 percent margin but higher material costs, research and development spending and effects from the used car market could weigh on the second half, the company said.

Lower gas consumption

Addressing concerns over how German industry will manage gas consumption in the event of further cuts to supply from Russia, Kallenius said Mercedes has reduced its gas consumption by 10 percent in Europe while maintaining full operations.

The company said it could reduce its gas intake in Germany by 50 percent if regional pooling took place. It said it had found a way to operate the paint shop in its Sindelfingen plant without gas in an emergency. The plant builds the high-end electric EQS, S-Class and Maybach models.

A worsening economic climate weighing on consumers are combining with the ongoing struggles to procure enough semiconductors for automakers. Ongoing pandemic lockdowns in China preventing people from buying cars are another threat.

Even so, Mercedes predicted healthy demand for its models during the second half with solid order books indicating demand continues to outstrip available cars.

New chip contracts

Kallenius said chip supply constraints hampered production of electric and top-end vehicles in the second quarter and are the main operational issue for the second half. The carmaker has already struck several contracts directly with chipmakers, he said.

Like other carmakers, Mercedes is prioritizing production of its most lucrative models.

Mercedes deliveries fell 7 percent during the second quarter because of a lack of chips and logistical challenges. Order books are full and the company expects to see a slight increase in sales, with the top-end luxury segment forecast to grow more than 10 percent.

While chip availability continues to be tight, automakers are seeing signs of the jam easing. Volvo Cars this month said improvements late in the second quarter were helping production resume.

Reuters and Bloomberg contributed to this report