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Mercedes-Benz: China Problem, U.S. Opportunity?

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In the run-up to its Q4 and Fiscal Year (FY) earnings release expected in middle of February, premium German carmaker Mercedes-Benz Group AG has released preliminary sales figures for FY 2024. Going purely by sales volumes, it seems that the company is set to erase 2023’s modest revenue growth in the current FY.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Source: Company Information; Leverage Shares analysis

The company’s much-vaunted Battery Electric Vehicle (BEV) endeavour – requiring entire new supply chains and production lines – has missed meeting the previous year’s sales figures by a wide margin, followed by its van offering.

Over in its car segment worldwide, both its relatively high-margin “Top-End” segment (represented mostly by its Mercedes-AMG, S-Class and G-Class catalogues) and its relatively low-margin “Entry” segment (represented best by its A-Class catalogue) have had a significant shortfall while its mid-margin high-volume “Core” segment (represented by its E-Class and GLC catalogues) remained strong, leading to a net 3% overall fall in car sales volumes year-on-year.

When broken down into regions, the United States was a particularly bright spot, where it sold 9% more cars than in the previous year. In most other regions, the company has sold fewer cars than in 2023.

Source: Company Information; Leverage Shares analysis

A very important revenue driver for the company is China, wherein the company’s brand image is one that represents success, luxury and class. So large is China on its radar that the next two largest markets combined – Europe minus Germany plus the U.S. – equal sales in China. China continues to decline in sales volume relative to last year, with similar percentage declines seen in the rest of Asia as well as its home base Germany.

The auto market in China has been in the throes of a damaging price war for well over two years now as the sprawling automotive landscape seeks to consolidate at all costs, economic headwinds or not. Mercedes-Benz had also participated in an aggressive price-cutting regime like its Chinese peers until the middle of last year, wherein it abandoned the price war in favour of a cost-cutting strategy, which was announced in the course of its Q3 2024 update.

Fact Patterns to Seek in Q4/FY 2024 Earnings Release

Given the shifting of markets and segments, the company is definitely worth some attention. Some fact patterns of interest that could come up in the earnings call would be of interest to investors:

  • As of FY 2023, over 86% of all sales in China were locally manufactured via a joint venture with BAIC Motor – a state-owned/state-backed carmaker – with a large portion of higher-margin models sold being imported. Given the massive drop in China sales vis-à-vis drop in overall sales of “Top-End” models, it is logical to assume that imported models are the worst-hit. While cost-cutting measures are unlikely to have produced tangible benefits for the entire FY if implemented in Q4, it might provide some margin improvement benefits if the supply chain ecosystem in China has significant linkages to the company’s global factory network. Of course, it’s debatable if there are additional avenues for cost-cutting in its global plants outside of layoffs and plant closures. Additional nuance on this would be the first interesting fact pattern to look for.

  • The continued rise of the U.S. as a market for the company is a very interesting pattern. It is entirely possible that the company would (or arguably should) increase both focus and investments into this region as a means of diversifying out of China. Additionally, in the advent of a tariff regime brought into place by the incumbent Trump administration, any announcement of new/augmented production facilities in the U.S./North America might be deemed to be a form of “future-proofing” for the company in a very promising market, thus forming the second fact pattern.

  • In the upcoming FY, the company has announced a new lineup of vehicles in the G-Class catalogue, which is decidedly a “Top-End” segment. The company had already stated that Q4 2024 was the “best-ever” quarter for the G-Class as well as the Mercedes-AMG lineup. Given the precipitous drop in “Top-End” sales, it means that these sales were achieved at cost to other “Top-End” lineups while simultaneously challenging other premium models/marques in the U.S. A rejig of focus and resources to streamline production lines and drop specific models in line with buyer interests would be the third fact pattern.

Since the release of the preliminary sales figures early in January, interest in the company’s tickers can best be described as “cautiously optimistic”. This is likely in anticipation of the fact that the company is making strong inroads in the U.S., where its BEV lineup will likely prove to be stiff competition in the premium end of the EV market, with pressure specifically being on the likes of Tesla and Rivian. Given the disparity in charging infrastructure density, the company would also be able to capitalize on interest in EVs by its plug-in hybrid (PHEV) lineup. In either case, it has over a century of brand equity through which it will appeal to buyers.

This sentiment of “cautious optimism” in the market belie sales figures but concrete strategy shift announcements could bring sustained tailwinds for the company’s tickers. Failing this, the trajectory likely would revert to a general holding pattern or even bearishness.

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