ZSell a percentage less products, but earn 19 percent more: the Mercedes-Benz automotive group achieved this feat in the first quarter of this year. Again, it must be said. The group reports an adjusted profit before tax (EBIT) of € 5.3 billion.
Due to a lack of semiconductors, disrupted supply chains and rising commodity prices, German carmakers have been producing significantly fewer vehicles for many months. At the same time, however, they increase their profits quarter by quarter, because they can sell their cars for significantly higher prices.
This works particularly well in Mercedes. This game has been going on for seven quarters: high demand, low supply, rising prices. A very simple and profitable economic formula. “We will continue to make progress on the price side from quarter to quarter,” said Harald Wilhelm, CFO of Mercedes, in the English-language conference call with analysts.
However, it cannot promise investors that things will continue this way in the long run. Given the current risks, it is worth being a little more cautious.
For the Mercedes-Benz Group, this was the first full quarter since the separation from the Daimler Truck commercial vehicle division. The company is now purely a supplier of automobiles, apart from the van sector, which contributes ten percent to sales and in which some delivery vans are still available: the “Sprinter” is still a Mercedes-Benz product.
In total, the company sold 487,008 new vehicles in the first three months of the year, generating sales of approximately € 34.9 billion. The yield in the passenger car sector was 16.5 percent.
Mercedes will become a company of pure luxury
It is not far from US competitor Tesla, which reported an operating margin of 19.2% for the same period. Mass producer General Motors also hit 11.2 percent in the last quarter. The scarce supply of cars is driving prices up around the world.
At Mercedes, however, there is also the strategy of CEO Ola Källenius, who wants to transform the car manufacturer into a luxury company. In the future, the company will no longer sell many cars, including smaller ones, but mainly expensive cars. This includes, among other things, the recently completed separation from the Smart brand, which is now continuing in a joint venture under the direction of the Chinese group Geely.
For the main brand, this means: more expensive AMG sports cars, more G-Class, Maybach and S-Class. “I would like to point out that sales in the upper segment have increased by five percent,” Wilhelm said. In the electricity segment, sales increased even more.
If the SUV variant of the electric EQS flagship hits the market, the numbers should continue to grow. The smaller EQE will also receive an SUV version, for which Mercedes promises high sales figures.
If you divide the total turnover of Mercedes-Benz by the number of vehicles sold, you get a value of 71,576 euros. This is a target that will probably grow in line with the luxury strategy.
But Porsche achieved a turnover of 102,000 euros per car sold in 2021. At Tesla, this calculation translates into the equivalent of 57,065 euros in sales per vehicle in the first quarter. Elon Musk’s company has also significantly increased its prices in recent months. The Model Y built in Grünheide near Berlin currently costs at least 56,990 euros.
BMW sells more cars
In the case of traditional manufacturers like Mercedes, the move to expensive variants is also reflected in the fact that they divert scarce semiconductors to those models with which they make the most. At the moment customers will have to wait a long time for smaller vehicles with few extras if they can order the cars. “The demand is very high. The decline in sales is solely due to the lack of semiconductors, “says Wilhelm.
Sales of competitor BMW also fell. As the Munich-based company obviously has a better grip on supply chains, their sales in the first quarter only dropped 6.2%. The Bavarians sold 596,907 vehicles over the period and are now far ahead of Mercedes in terms of sales.
But probably not when you win. Analysts recently criticized the fact that the Munich return targets weren’t ambitious enough. BMW will present its data on May 5th.
However, only producers benefit from the price boom. The additional profits do not reach the suppliers. On the contrary: the Dax Continental group lowered its profit expectations for the current year last week.
Instead of a margin of 5.5 to 6.5 percent (measured against profit before tax and interest), it only expects 4.7 to 5.7 percent. This profit is supported almost exclusively by the tire business. According to his own predictions, Conti could also suffer a loss in the automotive division.
The situation is similar for other automotive suppliers. The interim head of the big Stuttgart supplier Mahle, Michael Frick, has called for a “fair sharing of the burdens” in the sector in view of the sharp increase in costs, especially for raw materials. For the current year, the longtime CFO doesn’t dare to make a profit forecast for his company yet, because the business environment is too uncertain.
Vendors don’t take advantage of it
However, suppliers shouldn’t expect support from car manufacturers. “Of course it is important to us to have healthy and stable supply chains,” said Wilhelm, CFO of Mercedes. “However, when it comes to profitability, everyone is responsible for their area.”
There were also times when suppliers had double-digit returns and manufacturers only single-digit returns – there was not even a split between the companies.
In the end, customers have to pay. For them, the purchase prices of new cars will continue to rise in the near future. The prices of used cars are also still at a very high level. However, Mercedes-Benz does not expect further records in this area this year.
In 2021 the finance division, now called Mobility, had significantly increased its profits, among other things due to the extremely high prices of used cars. It probably won’t happen again this year. “If used car prices are sometimes higher than list prices, then this is not a situation that will remain the same in the long run,” Wilhelm said. However, there is no mention of a foreseeable drop in prices.