Daimler Beats Forecast But Uncertainty Remains over Shift to EV and Slowing Car Demand--Update
October 24 2019 - 5:24AM
Dow Jones News
By William Boston
BERLIN -- Daimler AG reported higher earnings and sales
Thursday, beating analysts' forecasts even as its Mercedes-Benz
unit continued to struggle with high investments in electric cars
and new technology and lingering criminal investigations in the
U.S. and Europe.
Global auto makers, faced with stricter greenhouse gas emission
standards, are in the midst of a fundamental shift to electric
mobility and are ramping up spending as a result. Adding to the
burden, the shift is happening just as a decadelong bull run in
auto sales is coming to an end.
Big premium car makers like Daimler, Audi AG and BMW AG have
sought to drive emissions down by producing more electric cars and
hybrids, as well as developing a broad range of smaller, less
polluting vehicles. The companies also want to boost volume sales
of less expensive -- and less profitable -- models to help cover
the rising technology costs.
But the third-quarter report shows that Mercedes is struggling
to boost profits while simultaneously investing in new technology.
With demand for cars falling world-wide, auto makers are cutting
prices, making it hard to offset the rising costs of building
electric cars with a vast array of digital features.
The upshot: in the three months to the end of September, unit
sales at Daimler's flagship Mercedes-Benz Cars division rose 8% to
604,655 vehicles, but the return on those sales dropped to 6% from
6.3%.
Highlighting the sluggish trend, Mercedes sales fell 1% to 1.74
million vehicles in the first nine months of this year, and the
return on sales plunged to 3.1% from 7.9% a year ago.
"In order to master the transformation in the next few years, we
need to increase our efforts considerably: we have to significantly
reduce our costs and consistently strengthen our cash flow," said
Chief Executive Ola Källenius in a statement accompanying the
quarterly earnings.
Mr. Källenius is expected to present the results of a monthslong
strategy review at meetings with investors next month, who are
hoping to hear more details about the company's efforts to rein in
costs.
Overall, Daimler's earnings were ahead of analyst forecasts,
driving the company's shares 5% higher in early morning trading in
Frankfurt.
Daimler, which also makes trucks, vans and buses, and operates a
range of car-sharing, ride-hailing and other new mobility services,
reported third-quarter net profit of EUR1.72 billion ($1.91
billion) after a EUR1.2 billion loss in the previous quarter. Sales
rose 8% from a year ago to EUR43.27 billion.
Analysts had focused on the company's ability to generate strong
cash flow in the quarter. But Daimler is bleeding cash as a result
of charges related to antitrust investigations in Europe and a
recent German regulator's ruling that found the company had used
illegal software to manipulate diesel emissions in some 2018 and
2019 models.
In September, Daimler was fined EUR870 million by German
authorities in connection with this case. In its third-quarter
report, Daimler said the risk of negative impacts on earnings and
its credit rating from additional fines and charges had increased
in light of investigations in the U.S. and Europe.
"There is a considerable amount of uncertainty because of these
diesel-related investigations," Daimler Chief Finance Officer
Harald Wilhelm told reporters, saying there could be additional
financial charges in the fourth quarter.
In light of the fines and costs so far, Mr. Wilhelm said Daimler
2019 earnings before tax to be "significantly below" the level of
the previous year.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
October 24, 2019 06:09 ET (10:09 GMT)
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