Written by Andrei Sychev
(Reuters) – German luxury automaker Mercedes-Benz said on Friday that third-quarter profits at its core auto division fell 64%, significantly below analyst estimates, as Chinese consumers continued to cut back on purchases of luxury goods in a weak economy.
“The third-quarter results do not meet our ambitions,” Chief Financial Officer Harald Wilhelm said in a statement, adding that the group would step up cost cuts.
Mercedes added that profits for the period from July to September were affected by model renewal costs in addition to the difficulty of the market, especially for new versions of the G-Class SUV, which will be launched in the next quarter.
It expects annual vehicle sales to be slightly lower than the previous year, and fourth-quarter sales in line with the third quarter.
A rare bright spot in the results was continued cash flow generation from the industrial business, which reached 2.39 billion euros ($2.59 billion) in the quarter, up 2% year-on-year.
Adjusted earnings before interest and tax (EBIT) in the automotive unit fell to 1.2 billion euros versus the average LSEG estimate of a 3.6% decline to 3.19 billion euros.
China’s problems
Ola Kylenius, CEO of Mercedes-Benz, warned that Chinese consumers are being very cautious about making large purchases, as long-term economic weakness and the local real estate crisis have created a great deal of uncertainty for consumers.
The luxury carmaker cut its full-year profit margin target twice during the third quarter, joining a growing number of European rivals blaming a weak Chinese car market for falling profits and margins.
The findings come as talks continue between Brussels and Beijing over looming tariffs on Chinese electric vehicle imports to Europe, posing a major headache for heavy vehicle companies in Europe that rely on China due to fears of potential retaliation.
Mercedes-Benz, which counts Beijing Automobile Group of China Ltd and Geely Chairman Li Shufu as two of its largest shareholders, called the tariffs a “mistake” and urged the European Commission to delay their implementation to allow further talks on the deal.
($1 = 0.9240 euros)
(Reporting by Andrei Sychev; Editing by Rachel Moore and Sonali Paul)