Crisis; What Chip Crisis? Mercedes Sales Dive 25%, Profit Jumps Nearly 20%.
“Good times for Mercedes are coming, because when the chips are rolling again, the profit increases significantly. But Tesla will become an even stronger competitor in the future”
The semiconductor shortage, which has crippled manufacturing by mass car makers, is a “crisis” made in heaven for Daimler subsidiary Mercedes, and perhaps its upmarket rival BMW.
While the automotive industry struggles to meet demand, the vehicles that can make it to the market command very strong prices. In the best of times though this means very small profit margins for mass car makers. But for the likes of Mercedes, it can throttle back on output that doesn’t make much money and concentrate on the money-making behemoths like the flagship S-Class and vehicles like the GLS and GLE.
On the 3rd quarter, Daimler group net profit rose to €2.6 billion ($3.1 billion) from €2.2 ($2.5 billion) billion in the same period last year. This as sales of cars and vans slipped 25% to 577,848. Investors liked this and Daimler https://www.reuters.com/companies/DAIGn.DEshares opened at €85.37, up 1.8%, although by early afternoon the gain had slipped back to a close to 1.5% gain. The Europe Auto 600 index had opened up marginally at +0.2%, but by mid-afternoon had slid back to 664.24, down 0.56%.
Compare this with Volkswagen’s performance Thursday when its shares dived almost 4-1/2% as investors penalized Europe’s biggest automaker for reporting sharply lower profits.
Volkswagen and its collection of mass market and premium brands said operating profits fell 12% to €2.8 billion ($3.3 billion) in the 3rd quarter, compared with the same period of 2020. The profit margin dropped to 4.9% from 5.4%. VW’s own name mass market brand lost €184 million ($214 million) in the quarter, similar to VW’s other mass market brands SEAT and Skoda. The likes of Audi and Porsche couldn’t arrest the slide.
BMW reports its 3rd quarter earnings November 3.
“We remain on track to meet our full-year targets thanks to a more robust business – resulting in an EBIT increase despite a challenging environment,” said Harald Wilhelm, Daimler’s Chief Financial Officer.
Daimler has forecast the adjusted profit margin will remain at between 10 and 12% in 2021.
Adjusted EBIT (earnings before interest and tax) rose to €3.6 billion in the quarter compared with the previous €3.5 billion.
“At the same time, we made substantial progress with our strategic agenda: continuing the rollout of highly desirable electric vehicles, laying the groundwork for scaled up battery cell production, and through gaining shareholder approval for creating two pure-play companies,” Wilhelm said.
Daimler will spinoff of its truck division in December.
Daimler said it expects chip supplies to improve in the current quarter although the shortage will continue in 2022. It previously warned the shortage would last into 2023.
Professor Ferdinand Dudenhoeffer, director of Germany’s Center for Automotive Research (CAR), said Mercedes’ performance was impressive, but still lagged behind Tesla, and this will continue.
Tesla’s profit per vehicle in the 3rd quarter was €7,173 ($8,340) compared with Mercedes’ €4,251 ($4,950).
“The good performance of Mercedes-Benz Cars & Vans is due to the strategy of concentrating on the upper market segment. That works because the revenue per vehicle has increased significantly which in Q3 was €54,312 ($63,150). Due to the high costs caused by the lack of semiconductors, the profits per vehicle have plummeted, but high quality has helped achieve a good result,” Dudenhoeffer said.
Dudenhoeffer estimates Tesla revenue per vehicle as €49,240 ($57,255) in the 3rd quarter.
“The good times for Mercedes are coming, because when the chips are rolling again, the profit increases significantly. But Tesla will become an even stronger competitor in the future,” Dudenhoeffer said.