Mercedes-Benz cuts sales forecast from 11% to 7.5% due to China’s economic downturn

Mercedes-Benz Group has cut its financial outlook, citing a sharp decline in its performance in the Chinese market. The luxury carmaker now expects adjusted returns for its main automotive division to fall by 7.5% to 8.5%, a sharp drop from its previous forecast of 11%, according to Bloomberg.

The company’s statement late Thursday cited China, its largest market, as a major concern. Sales of premium models such as the S-Class and Maybach sedans have fallen significantly, with wealthy buyers increasingly reluctant to buy them.

Mercedes-Benz attributed the forecast revision to a “further deterioration in the macroeconomic environment, primarily in China,” and noted “weak consumption and the continued downturn in the real estate sector.”

The development is part of a broader trend affecting German automakers, which are struggling with the transition to electric vehicles and dwindling profits in the Chinese market. Volkswagen AG recently abandoned a long-standing labor agreement and is considering closing factories in Germany due to weak demand. BMW AG also cut its full-year earnings forecast, citing similar challenges in China and sluggish electric vehicle sales.

Mercedes-Benz now expects its earnings before interest and tax to be “significantly below” last year’s level, undermining its luxury car strategy aimed at improving profitability by increasing sales of premium cars.

The severity of the profit warning caught some industry analysts off guard. “We expect a negative share price reaction,” commented Tom Narayan, auto analyst at Royal Bank of Canada, according to Bloomberg.

Double whammy

The company’s woes aren’t limited to China, with sales in Europe also under pressure. Mercedes deliveries in the region fell 13% in August, leading to a 3% drop in deliveries in the first eight months of the year. Poor electric vehicle sales are particularly worrisome because they could expose automakers to hefty fines for failing to meet EU CO2 emissions regulations set to tighten next year, according to Bloomberg.

(Source: Bloomberg)