Mercedes-Benz cut full-year earnings expectations as it contends with a deteriorating market in China and higher costs.
The German luxury automaker said Tuesday that it now expects an adjusted return on sales this year of 2% to 3% in its cars unit, down from previous guidance of between 3% and 5%.
Earnings before interest and tax are expected to land at the prior-year level of 5.82 billion euros ($6.5 billion), while the company previously expected a figure significantly above last year's.
Shares fell as much as 5.5% in early European trade.
"In addition to an increasingly challenging market environment in China, Mercedes-Benz Group expects higher costs in the fourth quarter, including higher material costs," it said in a statement.
Mercedes earlier this month reported a 31% drop in third-quarter car sales in China--its largest market--as it noted a continued challenging passenger car market and intense competition.
That came after it cut sales expectations for the year over the summer amid intensifying pressure in China and booked a hefty impairment in the country that hit earnings at its main cars business in the second quarter.
German rivals BMW, Porsche and Volkswagen have all recently reported lower sales in China as the industry grapples with intense competition from a slew of model launches from domestic brands that has sparked a prolonged price war at the same time as the overall Chinese market is shrinking.
Volvo Car warned last week that the Chinese market for legacy premium brands is in severe decline.
Western automakers are undergoing a series of restructuring measures to counter the challenges, with Mercedes previously pointing to expected benefits from the launch of more than 40 new models over the next couple of years combined with efficiency measures that include job cuts and shifting some production from its German home to lower-cost countries such as Hungary. It is also working to lower energy costs, increase automation, and decrease logistics expenses to cut the production cost of each vehicle.
In a statement Tuesday, Mercedes said it now expects free cash flow in its industrial business to land significantly below the prior-year level, having previously expected a figure slightly below.
Ahead of its third-quarter results due Wednesday, it said it expects to post an adjusted return on sales in its cars business of 2.5% in the quarter, with the corresponding figures in its vans business at 9.4%.
Group earnings before interest and taxes are seen at 1.77 billion euros in the quarter, with free cash flow in the industrial business of 172 million euros.
Comments