Adjusted returns at Mercedes’ main car unit are now expected to be between 7.5% and 8.5%. The previous forecast was 11 percent, the company said Thursday evening.
The downgrade “was triggered by the further deterioration in the macroeconomic environment, mainly in China,” Mercedes said, citing “weaker consumption as well as the continued decline in the real estate sector.”
The crisis in China is a problem for Germany
China’s woes are weighing on the German economy, and Mercedes’ warning about weakening profits is the latest blow to Germany’s most important industry, which is struggling with a bumpy transition to electric cars and falling profits from China.
China, the largest sales market, has serious problems, which Mercedes is suffering fromas Chinese affluent buyers postpone purchases of Mercedes’ most expensive models, such as S-class and Maybach sedans – notes Bloomberg.
Earlier, bad news came from other German automotive companies. Volkswagenthe continent’s largest carmaker, this month withdrew from a decades-old labor agreement. VW is also considering closing production plants in Germany because of weak demand, something that has never happened before in the company’s history.
BMW last week cut its full-year profit forecast, largely due to the crisis in China and sluggish sales of electric vehicles.
The failed luxury strategy
Mercedes’ statement said earnings before interest and taxes are expected to be significantly lower than last year. This represents a failure of Mercedes’ strategy of selling mainly luxury models, which was supposed to increase profitability.
As Bloomberg notes, the weakening of sales of top-class cars means a blow to Mercedes luxury strategy to help fund the transition to an all-electric future and support profits. The focus on wealthier consumers was supposed to protect sales from declines, but This strategy has not worked in practice.
What’s worse the world’s largest automotive market gave Mercedes’ latest electric vehicles a cold welcome. Younger customers in China are increasingly turning to domestic brands which, in their opinion, are equipped with more advanced digital and entertainment technology than German premium brands such as Mercedes.
Mercedes is losing money not only in China
Mercedes is also under great pressure in Europe. The Stuttgart-based manufacturer’s car sales across the region fell by 13 percent in August and by 3 percent in the first eight months of this year.
