Mercedes-Benz to Adjust Profit Outlook

Mercedes-Benz, the prestigious German automaker, is poised to revise its mid-term profit expectations, with a potential cut in its passenger car business targets. This move comes as the global automotive market continues to face weaker demand, compounded by an ongoing shift towards electric vehicles (EVs). The company plans to unveil the updated profit targets in mid-February, during its annual Capital Markets Day on February 20, which will also highlight the company’s financial results.

The decision marks a departure from its earlier forecast in 2022 when Mercedes-Benz anticipated an adjusted profit margin between 8% and 14%. Despite a likely reduction in targets, Mercedes-Benz still aims to achieve a double-digit profit margin. The company has also revealed plans to cut billions in costs over the next few years, although specific details on the cost-saving measures have not been disclosed yet.

Impact of Slowing Demand and Rising EV Competition

The automotive market slowdown is largely due to weak consumer demand for traditional vehicles, especially in the premium segment where Mercedes-Benz operates. This trend has been compounded by an accelerating shift toward EVs. While Mercedes-Benz has made strides in expanding its EV offerings, it has yet to gain a substantial foothold in the market.

The competition in the EV space has been particularly fierce, with Chinese EV manufacturers such as Geely, BYD, and SAIC making significant inroads. These companies offer vehicles at competitive prices and innovative designs, making them particularly appealing to consumers in both emerging and developed markets. In contrast, Mercedes-Benz’s electric models are seen as more expensive, which has contributed to slower adoption in a market that is increasingly focused on affordability.

Challenges in the Chinese Market

China, a key market for Mercedes-Benz, has also posed challenges. Sales in the region have slowed due to increased competition from domestic EV brands. Chinese consumers have become more cautious in their luxury purchases, further impacting the brand’s performance. This decline in sales is especially significant given that China has long been a critical market for Mercedes-Benz, as well as other German automakers like BMW and Audi.

Chinese EV makers have also started to take share from European automakers in the European market, offering steep discounts—allegedly supported by Chinese government subsidies. This has prompted the European Union to impose higher tariffs on Chinese EVs, but this move also increases the risk of retaliation from China. Retaliation could involve stripping European companies like Mercedes-Benz of key benefits in China, such as tax incentives and land subsidies, potentially impacting profitability further.

Tariff and Trade Tensions

The imposition of tariffs by the EU on Chinese EVs is a response to the competitive threat posed by lower-priced, government-subsidized Chinese vehicles. However, these tariffs also raise concerns about possible retaliation from China, which could affect Mercedes-Benz’s operations in the region. Retaliation might include the loss of favorable conditions, such as tax breaks, land subsidies, and easier market access, all of which are crucial for maintaining profitability in China.