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German automaker Mercedes-Benz has issued a profit warning, attributing the decline to a significant weakening of demand in the Chinese market. This announcement has caused a sharp drop in the company’s share price.
The company has revised its full-year profit outlook downward, citing a “further deterioration” of Chinese consumer demand. The new forecast for return on sales is now between 7.5% and 8.5%, down from the previously anticipated 10% to 11%.
Mercedes-Benz CEO Ola Källenius acknowledged that the company’s difficulties primarily stem from the Chinese market but also noted that higher interest rates are impacting sales in other regions, such as Europe. The company’s stock price experienced a significant decline in early trading, reducing its market capitalization to approximately €59 billion.
Mercedes-Benz joins a growing list of German carmakers expressing concerns about the weakening Chinese market, which is a crucial factor in their sales and profits. The company’s sales in its high-end segment have been particularly affected, hindering its premiumization strategy.
Despite the company’s efforts to develop and sell more expensive, high-margin vehicles, it does not anticipate a recovery in Chinese demand for these types of cars in the second half of the year.
Other German automakers, including BMW and Porsche, have also issued profit warnings due to weak Chinese demand. Porsche reported a third decline in Chinese sales during the first six months of the year.
Mercedes-Benz attributed the decline in Chinese demand to weaker consumer spending and a continued downturn in the real estate sector. As a result, the company’s full-year earnings before interest and tax are now expected to be significantly below the previous year’s level.
