Mercedes slashes financial forecast in latest blow to German industry

By Richard Clough and William Wilkes

Mercedes-Benz Group AG cut its financial forecast for the year as the luxury-car maker cited a rapid deterioration of its business in China, marking the latest blow to Germany’s struggling industrial sector.

Mercedes-Benz Cars now expects its adjusted return on sales to be between 7.5 per cent and 8.5 per cent, compared with a prior forecast of as much as 11 per cent, according to a statement Thursday. Mercedes-Benz Group said its earnings before interest and taxes is now expected to be “significantly below” the prior year level.

“This was triggered by a further deterioration of the macroeconomic environment, mainly in China,” the company said. “GDP growth in China lost further momentum amid weaker consumption as well as the continued downturn in the real estate sector. This affected the overall sales volume in China, including sales in the top-end segment.”

The profit warning is the latest setback for a German industrial sector that has been reeling since Russia cut off cheap gas supplies. Volkswagen AG, the continent’s biggest automaker, has scrapped a decades-old labor pact and is poised to close domestic factories in Germany for the first time due to lagging demand. BMW AG cut its full-year earnings guidance, partly citing sluggish EV sales.

For Mercedes, weakening sales for its top-end cars marks a blow to a luxury strategy that’s meant to help fund its transition to an all-electric future. China, a country where the automaker sells a relatively high share of its most opulent vehicles, was seen as a template the company could replicate elsewhere. 

Yet the company’s latest electric vehicles have met with a tepid response from consumers in Asia’s powerhouse economy. Meanwhile, younger customers in China are increasingly turning to homegrown brands that are perceived to have more advanced in-car digital and entertainment technology than premium German brands like Mercedes.