Mercedes-Benz announced plans to accelerate cost-cutting measures after third-quarter earnings dropped by half, impacted by weak demand and intense competition in China.
The luxury carmaker adjusted its full-year profit margin target twice during the third quarter, citing the weakening Chinese car market as the main factor for declining profits and margins, similar to other European competitors.
Moritz Kronenberger, a portfolio manager at Union Investment, a top 30 investor in Mercedes, called for a change in the company’s strategy, arguing that there is no longer a market for 2 million luxury cars.
“We support adjusting the strategy to meet new market conditions and increased competition from China,” he said.
Mercedes remains committed to its “value over volume” approach, opting not to engage in a price war in China and instead focusing on a significant model rollout next year to boost sales.
However, Kronenberger cautioned that this strategy works only when demand matches capacity, which is not currently the case for the automaker.
“Chinese demand is now centered on affordable electric cars, and Mercedes does not have a strong offering in this segment,” he added.
Mercedes shares fell 1.6% following the announcement, with its stock down about 8% for the year, underperforming Germany’s DAX index but faring better than rivals Volkswagen and BMW.
The company’s car division saw its adjusted return on sales plunge to 4.7% in the third quarter, its lowest profitability since the pandemic.
Chief Financial Officer Harald Wilhelm acknowledged the disappointing results, stating that cost-cutting efforts would intensify.
Earnings were also affected by the economic slowdown in China, which hit high-end S-Class model sales and increased costs related to new model revamps, such as the upcoming G-Class SUV.
Looking ahead, Mercedes expects slightly lower car sales for 2024 compared to the previous year.
The company is also urging the European Commission to delay tariffs on Chinese electric vehicles, warning that they could lead to retaliatory measures affecting Europe’s carmakers.