Premium models such as the S-Class bring Mercedes record profits.
(Photo: Reuters)
Frankfurt Higher prices, hardly any discounts and a focus on luxury cars: Thanks to these three factors, Mercedes-Benz is more profitable than ever before in its more than 136-year history. Specifically, the Stuttgart carmaker achieved an operating profit of 5.2 billion euros in the first quarter. In relation to sales of 34.9 billion euros, this results in an operating margin of a whopping 15 percent.
Even below the line, the net return is in the double digits. If the result is adjusted for special effects, the Dax group was even able to increase its margin in its dominant car division to 16.2 percent and that in the small van business to 12.6 percent. In the financial division, the return on equity was more than 20 percent. That is amazing. After all, the brand with the star recently had to accept a noticeable drop in sales.
“In this demanding environment, resilience and price enforcement are particularly important,” emphasizes Mercedes CFO Harald Wilhelm. “Our increased focus on desirable top-end and electric vehicles combined with continued cost discipline has enabled us to deliver a strong result despite severe headwinds.”
In fact, Mercedes has been pushing the sale of particularly profitable models such as the S-Class luxury sedan, the G-Class off-road vehicle and sub-brands such as Maybach and AMG for some time. From the beginning of January to the end of March, the Stuttgart-based company was able to sell around 78,000 of these high-end makes. This corresponds to an increase of five percent. At the same time, car deliveries shrank by ten percent overall as a result of the lack of chips and the war in Ukraine.
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(Photo: imago images/sepp spiegl)
Unlike in the past, however, neither sales nor earnings suffered from the falling sales. On the contrary. Thanks to the growth in ultra-luxurious sedans and SUVs, Mercedes was even able to increase its revenue slightly by six percent and net profit by at least three percent to 3.6 billion euros. The balance sheet is good on the stock exchange. Mercedes-Benz shares rose by more than two percent on Wednesday.
S-Class sales doubled
The main driver of the good result was the new S-Class. With the make at the base price of 105,403 euros, Mercedes sometimes generates margins of more than 20 percent. So it’s a good thing that the group was able to double sales of the S-Class to 32,000 units in the first quarter – while almost all other segments suffered a slump in sales.
Still, not everything at Mercedes is brilliant. As a result of the diesel scandal, costs of 281 million euros were incurred. In addition, the group had to write down assets in Russia in the amount of 709 million euros. After Russian troops invaded Ukraine, the Stuttgart-based company completely stopped its business in Russia and the export of vehicles and components to Russia. Since then, all activities have been suspended, including production near Moscow.
However, the sale of branches in Canada and Grand Prix shares resulted in a parallel positive non-recurring effect of EUR 918 million. This effect almost completely offset the negative impact on the operating result.
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Although Mercedes is extremely profitable, the group had to give up the crown in the first quarter. Because the US electric car manufacturer Tesla recently even achieved an operating profit margin of 19.2 percent. This puts Tesla a good four percentage points ahead of Mercedes. The Swabians have meanwhile confirmed their business forecasts for the current year.
Accordingly, the star troop in the car division for 2022 in prospect of an adjusted return on sales of 11.5 to 13 percent. In its van division, Mercedes is aiming for a return of eight to ten percent and in the financial business a return on equity of 16 to 18 percent. Vehicle sales are expected to increase slightly.
The outlook is ambitious. Especially since Mercedes explicitly points to growing uncertainties due to the war, supply chain disruptions and rising raw material and energy prices. “An escalation beyond the current status could have significant negative consequences for the business activities of Mercedes-Benz,” emphasizes the group.
In addition, Mercedes warns of “inflation risks” that could last all year. The Swabians want to mitigate all negative effects as much as possible through “strong price enforcement”.
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