Mercedes-Benz cuts margin outlook on weak Chinese market, shares fall By Reuters

FRANKFURT (Reuters) – Mercedes-Benz cut its full-year profit margin target for the second time in less than two months, joining a growing number of rivals blaming a weakening Chinese car market , the largest in the world.

The news, revealed late Thursday, sent shares of the German luxury carmaker down 7.5 percent to their weakest level in nearly two months, also dragging down European car stocks.

With China’s GDP growth losing steam due to weaker consumption as well as a continued decline in the real estate sector, the company cut its 2024 earnings outlook for both Mercedes-Benz (OTC:) Cars and Mercedes-Benz Group.

“There is a lot of caution, I’m trying to say that diplomatically,” CEO Ola Kaellenius told analysts on a call after the announcement, adding that it was not surprising that spending on expensive capital goods had been reduced in such a environment.

“How long will this last? I don’t know, but I remain cautious for the foreseeable future in China.”

Continued weak demand for luxury cars in China has already led the Stuttgart-based automaker to cut its outlook in July.

Mercedes-Benz Cars now expects an adjusted return on sales to be between 7.5% and 8.5% in 2024, down from 10% to 11% previously, implying an adjusted return on sales of around 6 % for the second half of the year.

As a result, the Mercedes-Benz Group’s earnings before interest and tax (EBIT) are now expected to be significantly below last year’s level of 19.7 billion euros ($22 billion), compared with forecasts for a slight decline previously .

According to LSEG estimates, the group’s EBIT is expected to reach 15.83 billion euros.

“While some investors anticipated a profit warning … we still view this news as a surprise, especially given the breadth and lack of cautionary commentary ahead of today’s news,” RBC analysts said.

Free cash flow for the group’s industrial businesses is also expected to be significantly lower than the previous year’s level.

Last week, BMW ( ETR: ) also signaled ongoing weak demand in China is weighing on sales in the country, adding to the group of automakers struggling in the second-largest economy from the world.

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