Intense price wars have taken a toll on luxury carmaker Mercedes-Benz, as its revenue and profits have declined, leading to a significant drop in its stock price. | Insights from the Earnings Report

Mercedes-Benz announced its earnings report on Thursday, revealing a significant decline in performance in the third quarter due to intense price competition in the electric vehicle market and challenges in the supply chain. The company's stock price plummeted as a result.

According to the report, the company's preliminary EBIT (earnings before interest and taxes) for the third quarter dropped by 7% to 4.8 billion euros, slightly better than analysts' expectations. Net profit also decreased by 7% to 3.72 billion euros, while revenue fell by 1.4% to 37.2 billion euros, lower than analysts' expectations. Car sales declined by 3.7%, while van sales increased by 1.1%. Overall, the company's sales remained relatively stable for the first nine months of this year.

In addition, Mercedes-Benz's adjusted sales return rate for the third quarter decreased from 14.5% to 12.4% compared to the same period last year, while the adjusted operating profit margin for vans increased from 13% to 15%. The company's free cash flow also dropped by 22% to 2.35 billion euros, mainly due to the decline in passenger car sales and increased investment in technology research and development.

Following the release of the earnings report, Mercedes-Benz's stock price on the Frankfurt Stock Exchange in Germany closed down 5.77% at 57.85 euros, with a intraday decline of up to 6.7%.

During the earnings conference, Chief Financial Officer Harald Wilhelm stated that the current automotive market demand is weakening, with intense price competition, particularly in the electric vehicle market. In addition, inflation, supply chain issues, and exchange rate losses are also major challenges facing the company.

Wilhelm also expressed that the competition in the electric vehicle market is fierce, and some traditional car manufacturers are pricing their electric vehicles even higher than their gasoline-powered vehicles, despite the higher costs. He believes that this situation is unlikely to be sustainable. Furthermore, the discounts offered by Mercedes-Benz on certain models in the German market in the fourth quarter do not represent a shift in the company's pricing strategy. The company will continue to focus on driving profits through a high-price strategy.

Mercedes-Benz's goal is for hybrid and electric vehicles to account for 50% of its global sales by 2025, and it has announced that it will only release pure electric vehicles from now on. The company stated on Thursday that it will continue to adhere to these two major goals. The report shows that the proportion of pure electric vehicle sales has increased from 6% to 11% in the first nine months of this year.

However, Wilhelm mentioned that if the profits from electric vehicles fall significantly below expectations, the company may increase profits by selling more gasoline-powered vehicles. Despite acknowledging the current market weakness, Wilhelm believes that the worst period has passed when considering inflation and energy prices.

Analysts believe that traditional car manufacturers have been slow to transition to electric vehicles, despite setting ambitious targets in recent years. However, they are facing fierce competition in the electric vehicle field from competitors such as Tesla and BYD. Moreover, in recent times, manufacturers such as Ford and Tesla have started to lower prices in the US and Chinese markets to stimulate demand, but Mercedes-Benz has consistently refused to follow suit. Mercedes-Benz showcased the all-new CLA concept car at last month's Munich Motor Show. According to previous reports from Wall Street Journal, the CLA concept car is close to production and is expected to be mass-produced in 2024, although the estimated price has not been announced yet. Judging from the current price of Mercedes-Benz A-Class cars, its main competitor will be Tesla Model 3/Y. This means that next year, the "inventor of automobiles" Mercedes-Benz will directly confront the reigning champion of electric vehicles, Tesla. At that time, Mercedes-Benz may use this opportunity to dispel the shadows of the past few years in the field of electrification. In addition, based on the CLA concept car, Mercedes-Benz will launch four models, including a sedan, a shooting brake, and two SUVs.