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Mercedes car earnings plunge as China shuns luxury

By Andrey Sychev

(Reuters) -German premium automaker Mercedes-Benz (OTC:MBGAF) on Friday said third-quarter earnings in the core car division plunged by 64%, massively missing analysts’ estimates, as Chinese consumers continued to cut back on luxury goods in a weakening economy.

“The Q3 results do not meet our ambitions,” CFO Harald Wilhelm said in a statement, adding that the group will step up cost cuts.

The July-September earnings were hit by model revamp costs as well as a tough market, especially for new versions of the G-Class SUV, which will roll out in the next quarter, Mercedes added.

It sees annual car sales slightly below the previous year, and fourth-quarter sales in line with the third quarter.

A rare bright spot in the results was the continued cash flow generation from the industrial business, which reached 2.39 billion euros ($2.59 billion) in the quarter, up 2% year-on-year.

Adjusted earnings before interest and taxes (EBIT) in the car unit dropped to 1.2 billion euros versus LSEG’s mean estimate of a 3.6% drop to 3.19 billion euros

CHINA WOES

Mercedes-Benz CEO Ola Kaellenius has warned that Chinese consumers are extremely cautious about making big purchases, as long-standing economic weakness and by a local real estate crisis have created considerable uncertainty for consumers.

The luxury carmaker cut its full-year profit margin target twice during the third quarter, joining a growing number of European rivals blaming a weakening Chinese car market for falling profits and margins.

The results come as talks between Brussels and Beijing continue over looming tariffs on imports of Chinese EVs into Europe, a major headache for Europe’s China-dependent car heavyweights due to the fears of potential retaliation.

Mercedes-Benz, which counts China’s Beijing Automotive Group Co Ltd and Geely Chair Li Shufu as its two top shareholders, has called the tariffs a “mistake”, urging the European Commission to delay their implementation to allow further talks on a deal.

($1 = 0.9240 euros)

This post appeared first on investing.com

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