Daimler Shares Dive After Cost Cutting News.
“In addition, a wave of consolidation could begin at the automobile companies. Fiat Chrysler (FCA) and Groupe PSA may just be the beginning”
Mercedes-Benz parent Daimler’s shares fell close to 3%, after news it will have to cut costs more than 1 billion euros ($1.1 billion) by 2022 to meet tougher European Union (EU) fuel efficiency rules.
The news suggested to one analyst that this was symptomatic of the gathering storm facing the global automotive industry which might even force traditionally successful premium auto makers like Mercedes to merge with its compatriot BMW.
Daimler said Mercedes expects an operating profit of at least 4% in 2020 and at least 6% in 2022. Mercedes has traditionally been capable of generating profits of at least 8%.
Citi Research said the announcement, made at a special capital markets meeting called to outline Daimler’s long-term future, showed expectations were now for earnings before interest and tax (EBIT) of less than the range of 7 billion to 7.5 billion previously expected for 2020.
In early afternoon trading, Daimler shares were down 2.95% at 51.85 euros.
Daimler had increased its EBIT earnings in the third quarter 8% to 2.69 billion euros ($3.0 billion) compared with the same period last year, as sales at its Mercedes division advanced. Despite that, Mercedes profit margins actually slipped to 6% from 6.3% a year earlier. Daimler had a 2nd quarter EBIT loss of 1.6 billion euros ($1.8 billion) after a 2.6 billion euro ($2.9 billion) profit in the same period last year. Before that announcement, Daimler had cut its profit forecast for the third time in 12 months.
Analysts had expected the meeting to be told about a path to restore Mercedes margins to between 8 and 10%.
Investment bank Nord LB said yesterday’s announcement Tesla plans to make its cars in Germany will put additional pressure on local auto makers.
“In addition, a wave of consolidation could begin at the automobile companies. Fiat Chrysler (FCA) and Groupe PSA may just be the beginning. Volkswagen is already cooperating with Ford on electric cars and light commercial vehicles. Toyota has more closely linked with Mazda, Subaru and Suzuki. Perhaps it will be time for closer cooperation or even a merger between Daimler and BMW,” Nord LB analyst Frank Schwope said.