Mercedes-Benz slashes forecast from 11% to 7.5% amid China’s economy downturn

Mercedes-Benz Group AG has cut its financial outlook, citing a sharp decline in its Chinese market performance. The luxury automaker now projects adjusted returns for its main cars division to fall between 7.5 per cent and 8.5 per cent, a marked decrease from its previous forecast of up to 11 per cent, Bloomberg reported.

The company's Thursday evening statement pointed to China, its largest market, as the primary cause for concern. Sales of high-end models like the S-Class and Maybach sedans have seen a notable downturn, with affluent buyers increasingly hesitant to purchase.

Mercedes-Benz attributed the forecast adjustment to "a further deterioration of the macroeconomic environment, mainly in China," noting “weaker consumption as well as the continued downturn in the real estate sector,” as per the report .

This development is part of a broader trend affecting German automakers, who are grappling with the transition to electric vehicles and diminishing profits from the Chinese market. Volkswagen AG recently abandoned a long-standing labour agreement and is considering closing factories in Germany due to weakening demand. BMW AG has also lowered its full-year earnings guidance, citing similar challenges in China and sluggish electric vehicle sales.

Mercedes-Benz now expects its earnings before interest and taxes to be "significantly below" last year's levels, a setback to its luxury-focused strategy aimed at boosting profitability through increased sales of premium vehicles.

The severity of the profit warning caught some industry analysts off guard. RBC automotive analyst Tom Narayan commented, “We would expect shares to react negatively,”  according to the Bloomberg report.

Double whammy

The company's struggles extend beyond China, with European sales also under pressure. August saw a 13% drop in Mercedes deliveries across the region, contributing to a 3% decline over the first eight months of the year. The lacklustre performance of electric vehicle sales is particularly concerning, as it could expose automakers to substantial fines for failing to meet EU CO2 regulations set to tighten next year, Bloomberg reported.

(With Inputs from Bloomberg)