Decline in demand for cars on tap, objectives change to 2030. Dividend slightly increased. Buyback up to 3 billion
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Mercedes-Benz changes electrification goals. Demand does not correspond to forecasts and prices also promise to remain at high levels for some time to come, according to the Stuttgart company. And so, on the very day in which the President of the European Commission, Ursula von der Leyen, confirms 2026 as the date for questioning the ban on internal combustion engines (2035), the reassurance arrives: we will be able to update the technology and produce internal combustion car until the next decade.
Meanwhile, the Mercedes-Benz group closed 2023 with a net profit of 14.53 billion euros, down 1.9% compared to 2022. Revenues instead rose by 2.1% to 153.318 billion euros. Ebit fell by 3.9% to 19.66 billion euros, with adjusted Ebit standing at 20.004 billion (-3.2%). The free cash flow of the industrial business reached 11.3 billion euros (+39.2% from 8.1 billion euros in 2022), mainly thanks to the still high profitability, the high liquidity conversion rate and the lower working capital. The net liquidity of the industrial sector rose to 31.7 billion euros (from 26.6 billion at the end of 2022). The EPS stood at 13.46 euros (-0.7%).
Dividend up and buybacks up to 3 billion
As for the fourth quarter of 2023, Mercedes-Benz Group recorded revenues decreasing by 1.8% to 40.261 billion euros, an Ebit of 4.326 billion (-20.1%) and a net profit of 3.16 billion (-21.5%), with an EPS of 2 .99 euros (-19.7%).
At the shareholders’ meeting on May 8th, the board of directors will propose the distribution of a dividend of 5.30 euros per share (up from 5.20 euros last year). Furthermore, the group announces a further share buyback program for a maximum value of 3 billion euros. For 2024, group revenues are expected to be at the 2023 level, group Ebit is expected to be slightly below the 2023 level and Industrial Sector Free Cash Flow is also expected to be slightly below the 2023 level.
Decreasing demand for cars on tap
At its annual conference in Stuttgart, Mercedes-Benz warned that electric vehicles will remain more expensive than their internal combustion engine cousins for a long time to come, as the luxury car maker braces for a cooling demand for cars on tap, concentrated above all in the medium-small segments, where the three-pointed star is not so present.
The German premium carmaker actually forecast a reduction in profits this year, citing challenges posed by the slowing economy. This is an “exceptional” uncertainty caused by conflicts in the Middle East and Ukraine and by tensions between China and the United States. Supply chain bottlenecks for critical components remain “a significant risk factor”, while the potential for an “even more pronounced” slowdown in economic growth could impact automotive markets.
First quarter sales are therefore likely to be below the prior year level.
For 2024, the German group said it expects an adjusted return on sales lower than that of 2023 (12.6%), equal to 10-12% for cars and 12-14% for vans, down from to 15.1% last year.
Cost parity “many years away”
A significant problem is that the parity of variable costs between electric vehicles and traditional cars would be “many years away”, according to CEO Ola Källenius. “You can see it in the prices.” The luxury car manufacturer increased the average price by 2%, bringing it to 74,200 euros. This is in spite of the recent forecasts of Goldman Sachs, which estimated that cost parity between electricity and thermal energy could be achieved already by 2025, thanks to the collapse (-40%) in the prices of raw materials for batteries, which account for 30% of the cost of a BEV (battery electric vehicle).
Moreover, demand for electric vehicles has cooled across Europe, with Chinese rivals and Tesla exposing the competitive weaknesses of the continental manufacturers. Volkswagen has shelved plans to list its battery business. AND negative signals on demand in Spainwhere VW aims to build its third cell factory in Sagunto, near Valencia, and whose production is expected to start by 2026, are negative.
Plug-in hybrids that are relevant for a long time, the targets change
At this point Mercedes-Benz warns customers and investors: the company says it is well positioned to continue producing cars with internal combustion engines and updating the related technology until the next decade. And the targets are changing: now in Stuttgart they expect 50% (no longer 100%) of sales by the end of the decade to come from electrified cars. Källenius had already warned, at the end of 2023, that Europe would probably not be ready by then. Manufacturers’ investments in capacity and technology development have outpaced actual demand for electric vehicles, increasing pressure to cut costs.
That’s why “we think plug-in hybrids will remain relevant for a long time to come,” the Mercedes-Benz CEO said on Thursday. And they are precisely the hybrids, second a Deloitte survey anticipated by the Sole 24 Ore, the true protagonists of demand among European consumers, together with internal combustion cars. We still have to wait for the boom in demand for electric vehicles.
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Alberto Annicchiarico
vicecaposervizio
View on ilsole24ore.com
2024-02-22 18:12:51
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