Mercedes sees strong demand defying mounting economic woes

MERCEDES-BENZ AG expects strong sales of top-end vehicles like its G-Wagon SUV to help shield the automaker from the global economy taking a turn for the worse. 

While signs of a slowdown proliferate with surging inflation and rising interest rates, a shift to high-margin vehicles will keep returns from slipping below targets, Mercedes said on Oct 26, reporting a jump in earnings and raising projections for the year. The company also kept intact its forecast for deliveries, even as it cut back its sales outlook for Europe and the US. 

“Even if the macroeconomic situation in Europe is shaky in 2023, the appetite for these great products is there,” Mercedes CFO Harald Wilhelm said on a media call. 

After two years of protracted supply-chain shortages, a large backlog of orders will also support demand for vehicles in a downturn, he added. 

Warnings over the health of the Chinese, European and US economies are mounting as consumers face surging energy bills and slowing property markets. Automakers usually aren’t immune to downturns, though Mercedes has pledged to keep margins from slipping below 8% even in a very challenging environment by focusing on its biggest-earnings cars like the S-Class and its electric sibling, the EQS. 

Mercedes will exit its Russian business in the wake of the country’s invasion of Ukraine, planning to sell its subsidiaries to a local investor, subject to approvals from authorities. 

Before the war, the automaker operated a so-called knock-down kit manufacturing plant near Moscow. The Russia plant, opened in 2019, received components for final assembly of E-Class sedans and other vehicles. 

Returns in the core auto-making division rose to 14.5% during the third quarter, up from 8.8% last year. 

Robust sales especially for high-end models and healthy pricing prompted Mercedes to raise its outlook for the second consecutive quarter, defying the increasing drag from macroeconomic factors. At the same time, executives stopped short of outlining expectations into next year. 

Mercedes now sees group profit significantly higher than a year ago, up from a projection of a “slight” gain. For the core car division, the adjusted return on sales is expected to rise to as much as 15%, up from as much as 14%. Mercedes also raised the outlook for its vans division. Bloomberg

  • This article first appeared in The Malaysian Reserve weekly print edition