Mercedes defies fragile supply chains – economy

The car manufacturer Mercedes-Benz has again increased its profits despite a decline in sales due to production downtime. Adjusted operating profit rose in the first quarter compared to the high level of the previous year by 19 percent to 5.3 billion euros, as the Dax group announced on Wednesday. The turnover of the group, which has been separated from the truck subsidiary Daimler Truck since the end of 2021, rose on a comparable basis by six percent to 34.9 billion euros. “In this demanding environment, resilience and price enforcement are particularly important,” explained CFO Harald Wilhelm.

The shortage of semiconductors that has persisted since last year slowed production at the start of the year. In addition, the war in the Ukraine led to delivery failures for wiring harnesses manufactured there, which also paralyzed production at Mercedes. The car sales of the brand with the star fell by ten percent from January to March, but highly profitable top models such as the S-Class luxury sedan sold well. Thanks to high demand, the group, which CEO Ola Källenius wants to trim to luxury, can push through higher prices. That and ongoing cost discipline enabled a strong result despite strong headwinds, said Wilhelm. The return on sales of the main division Mercedes-Benz Cars rose by a good one and a half percentage points to 16.4 percent, thereby exceeding market expectations. For the year as a whole, it should be at the upper end of the announced range of 11.5 to 13 percent.

Growing insecurity

Like all western car manufacturers, the Stuttgart-based group put its business in Russia completely on hold after the outbreak of war in the Ukraine. This resulted in a charge of 709 million euros. For example, the company continues to pay the wages of the 1,000 employees in its car plant in Moscow. The bottom line is that profits climbed only three percent to 3.6 billion euros. The Dax group pointed to the growing uncertainties due to the war, supply chain disruptions and rising raw material and energy prices. “An escalation beyond the current status could have significant negative consequences for the business of Mercedes-Benz,” warned Mercedes, but stuck to its annual outlook.

Sales of cars and vans and sales are expected to increase slightly, with pre-tax profits at the previous year’s level. Of the traditional car manufacturers, Mercedes-Benz currently has the best momentum and the most stable demand, commented Patrick Hummel, car analyst at Bank UBS, before the balance sheet presentation. In general, however, the uncertainty about production losses as a result of the war and the spreading corona lockdown in China is overshadowing the auto industry. With a return of more than 16 percent, the brand with the star maintains a level that is reserved for luxury manufacturers with exclusive customers and small quantities. US electric car maker Tesla fared even better in the first quarter with an operating margin of 19 percent. According to the UBS forecast, the German Mercedes archrival BMW earned significantly less than ten percent of sales in the first quarter.

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