Decoding Mercedes-Benz's grim outlook on global EV market

Luxury carmaker, Mercedes-Benz, has revealed concerns about the intense competition in the electric vehicle (EV) market, marked by aggressive price reductions and supply chain disruptions.

As a result, the company is anticipating that its adjusted return on sales for the cars division may fall within the lower range of the 12-14 per cent forecast. This announcement coincided with a decline in third-quarter earnings, which has put pressure on the company's financial outlook.

According to Reuters, Mercedes-Benz's Chief Financial Officer, Harald Wilhelm, mentioned on an analyst call that if margins on EVs continue to underperform compared to earlier projections, they could seek to bolster earnings through their combustion engine portfolio.

He described the current EV market landscape as "brutal," especially due to established players selling battery electric vehicles at prices equivalent to or even below internal combustion engine cars, despite the higher production costs. Reuters quoted Wilhelm as saying, "I can hardly imagine the current status quo is fully sustainable for everybody."

The luxury automaker emphasised its unwavering commitment to its EV targets while acknowledging the necessity of exploring alternative revenue streams.

Although Mercedes-Benz has witnessed discounts on some of its models in Germany during the fourth quarter, the company clarified that this does not represent a fundamental shift in its pricing strategy and its commitment to keeping prices high to prioritise margin growth remains intact.

The reaction to these developments was swift in the financial markets.

Mercedes-Benz shares plummeted by over 6 per cent as of 0733 GMT, reaching their lowest point in nearly a year. They emerged as the biggest losers on the Eurozone blue-chip index, with BMW down 4 per cent and VW (Volkswagen) down more than 2 per cent.

The overall sentiment seems to be reflective of the challenges that the luxury carmaker is currently facing in the EV market.

The struggle in the EV market is not unique to Mercedes-Benz. Carmakers like Ford and Tesla have been implementing significant price reductions throughout the year in various global markets, from the United States to China, in an attempt to boost demand. However, Mercedes-Benz has largely refrained from following this trend, maintaining its commitment to premium pricing.

The company reported a 12.4 per cent adjusted return on sales in its cars division for the third quarter. The group's earnings before interest and taxes (EBIT) fell by 6.8 per cent to 4.8 billion euros ($5.1 billion). Group revenue decreased by 1.4 per cent to 37.2 billion euros.

In terms of sales, Mercedes-Benz reported a 4 per cent drop in the third-quarter, with top-end sales down by 11 per cent. This decrease was attributed in part to model changeovers and a shortage in 48-volt systems supplied by Bosch.

Mercedes-Benz acknowledged that the market environment is currently "subdued". However, Harald Wilhelm expressed optimism, stating that they believe "we are beyond the worst" when it comes to inflation and energy pricing, hinting at potential stabilisation in the broader economic landscape.

(With inputs from Reuters)

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