Mercedes-Benz Group AG issued a stark profit warning on Tuesday, slashing its full-year earnings expectations as an enduring macroeconomic downturn and real estate slump in China hit demand for its highest-margin luxury saloons and electric vehicles.
The Stuttgart-based automaker announced that it now expects its core cars division to generate an adjusted return on sales between 7.5% and 8.5% for 2024, down substantially from its prior target range of 10% to 11%. Overall group earnings before interest and taxes (EBIT) are now projected to come in significantly below the €19.7 billion recorded in 2023.
Macroeconomic Headwinds and Slumping Demand in China
China represents approximately one-third of global sales for Mercedes-Benz and historically generates an outsized share of operating profits through sales of top-tier models including the flagship S-Class, Mercedes-Maybach limousines, and the G-Class SUV. However, protracted consumer gloom and falling property values have curtailed luxury discretionary spending across Chinese metropolitan hubs.
Compounding the macro weakness is relentless price competition from ambitious Chinese electric vehicle manufacturers such as BYD, Li Auto, and Nio, who are aggressively launching feature-packed premium models equipped with advanced autonomous driving and localized infotainment software at competitive price points.
“The macroeconomic environment in China has deteriorated further, with weakening consumer confidence particularly impacting our high-end vehicle segment. We are taking decisive measures to optimize cost structures and protect cash generation.”
Intensifying Competition in the High-End EV Segment
The revised outlook marks the second time in three months that Mercedes-Benz has lowered its guidance, underscoring broader structural challenges confronting traditional European automotive giants transitioning to battery-electric propulsion. Fellow German manufacturers BMW and Volkswagen have similarly trimmed forecasts amid weakening Chinese demand and elevated capital expenditure.
Mercedes-Benz shares slid more than 7% in Frankfurt trading following the ad-hoc regulatory disclosure, dragging the broader European automotive index down. In response, management confirmed it will tighten spending on research and development while maintaining strict discipline on inventory management across its dealer network in Asia.
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