Daily Management Review

Daimler Upgrades Its Profit Forecast With Growth In Luxury Car Sale In China


Daimler Upgrades Its Profit Forecast With Growth In Luxury Car Sale In China
An upbeat German auto major Daimler raised its forecast for profits for 2020 after the company reported a 24 per cent spike in demand and sale for its Mercedes-Benz cars in the Chinese market which boosted the company’s margins for the third quarter.
However it also warned that forecasting could be hard because of the possibility of a spike in Covid-19 infections.
The company had recorded anecdotal evidence of wealthy Chinese families not being able to expend money on expensive European holidays because of the Covid-19 pandemic and instead were purchasing luxury goods at home, Daimler's chief executive said earlier this week.
There was a 9.4 per cent rise in the adjusted return on sales by its Mercedes-Benz cars and vans division during the quarter ended September 30 because of higher prices and a fall in fixed costs, the company said. In comparison, the company had reported the figure at 7 per cent for the same period while the company had achieved minus 1.5 per cent for the metric in the second quarter.
Full-year earnings before interest and taxes (EBIT) are now expected to match last year's levels, said the German car and truck maker. It had previously estimated a drop in earnings for the current year. In 2019, EBIT came in at 10.3 billion euros.
The company said that visits to its showrooms, orders or sales have not been hit in recent days despite a spike in Cpovid-19 infection rates. However its forecast was based on the assumption that conditions would continue to normalise, the company warned.
Daimler shares climbed following the results and were trading 2 per cent higher.
Compared to 3.14 billion in the same quarter a year ago, the company’s adjusted EBIT rose to 3.48 billion euros ($4.1 billion) for the third quarter. Despite an increase in the sale of less profitable plug-in hybrid and electric vehicles (EVs) to 45,000 cars, the company reported a recovery in its profit margins.
Daimler said that it expected acceleration in the fourth quarter for sales of low emission cars and anticipated deliveries of such vehicles reaching triple-digit thousands. The company added that all those vehicles were sold at a profit and this expected rise in sale and deliveries ill help the company to meet its European emissions goals.
"We appreciate the fact the Mercedes can deliver very high margins whilst selling an increasing number of electrified vehicles. This should calm down some of the fears concerning alleged material profitability erosion from EVs," Arndt Ellinghorst, analyst at Bernstein Research, said on Friday.
The car maker also said that about 2,000 staff agreeing to voluntary redundancy as a part of its cost cutting drive which it had taken undertaken to help offset lower profits from hybrid and electric cars.
Solutions for divisions that are losing money, such as its ride-hailing joint venture with BMW, are still being sought out by the company, Daimler said. An offer of purchasing the business for more than 1 billion euros has been made by Uber, , Germany's Manager Magazin said on Wednesday.