European car companies are having a hard time, with Mercedes-Benz's profits halved and Porsche's profits plummeting

Due to a significant decline in profit and revenue, Mercedes-Benz has to find ways to cut costs.

On Friday, October 25th, Eastern Time, the German automaker Mercedes-Benz announced that the company is now trying to save costs due to a halving of profits in the third quarter, especially with a significant drop in car sales in China and Europe.

In addition, Porsche is enhancing its research and development capabilities in China, lowering vehicle prices to boost sales. However, the effect on sales improvement is limited, with a 5.2% year-on-year decline in revenue and a 27% year-on-year decline in operating profit in the first three quarters.

Affected by this news, Mercedes-Benz's stock price in the US fell by more than 1.3% at one point, while European stocks fell by nearly 3.9% intraday. Porsche's ADR fell by nearly 0.7% intraday.

Mercedes-Benz Q3 Profit Margin Drops from 12.4% to 4.7%

The latest quarterly report shows that Mercedes-Benz's automotive division's Q3 profit margin dropped significantly from 12.4% in the same period last year to 4.7%. The company's net profit was 1.7 billion euros, far below the 3.7 billion euros in the same period last year. Total revenue also decreased by 6.7% year-on-year to 34.5 billion euros. Looking at specific markets, car sales in China fell by 17%, and in Germany, they dropped by 25%. The Chinese market is crucial for Mercedes-Benz, as the Chinese market accounted for about one-third of its total sales last year.

It is worth noting that not only has Mercedes-Benz lowered its annual profit margin expectations twice in the past three months, but other European automakers are also facing similar challenges. Earlier this week, Volvo and Volkswagen also lowered their annual performance expectations. Among European automakers, only Renault is still maintaining its unchanged full-year financial targets.

Mercedes-Benz reported that one of the reasons for the profit decline is the slowing global demand for electric vehicles. To attract consumers and support dealers in China, Mercedes-Benz had to offer discounts to consumers, thereby squeezing profit margins.

European automakers have invested heavily in producing electric vehicles to comply with the EU's policy to ban new fossil fuel vehicles by 2035. However, they are now facing various issues, such as declining demand for electric vehicles, reductions in subsidies for purchasing electric vehicles in Germany and other European countries, and inadequate charging infrastructure, leading to decreased consumer interest in electric vehicles.

Harald Wilhelm, the CFO of Mercedes-Benz, pointed out that in Europe, the demand for pure electric vehicles is far below industry expectations. Sales of pure electric vehicles in the most recent quarter fell by 31% year-on-year, while sales of plug-in hybrid vehicles increased by 10%.

Wilhelm told investors on Friday that the company is taking various measures to improve performance and preparing for a market that may not improve in the short term. He emphasized, "Given the more challenging market environment, we will focus on costs, re-examine and adjust every detail and aspect."

Despite the poor performance this quarter, analyst Tom Narayan from RBC Capital Markets pointed out that Mercedes-Benz's free cash flow is higher than expected, which is good news as it supports the shareholder dividend and capital return plans for 2025. Wilhelm also revealed that the company plans to further repurchase shares next year to enhance shareholder returns

Porsche's Operating Profit Declined by 27% Year-on-Year in the First Nine Months

On Friday evening Beijing time, Porsche announced its financial report, showing that the company's revenue declined by 5.2% year-on-year to 28.56 billion euros in the first three quarters. The operating profit for the first three quarters decreased by 27% to 4.04 billion euros. The net cash flow from automotive activities in the first three quarters dropped by 63% to 1.24 billion euros. The sales operating return rate for the first three quarters was 14.1%, lower than the 18.3% in the same period last year.

In terms of performance guidance, Porsche maintained its full-year revenue expectation at 39 billion to 40 billion euros, while analysts expected 39.13 billion euros. The full-year operating profit margin expectation of 14%-15% was also maintained, with analysts expecting 14.6%.

Porsche is expanding its research and development team in China, particularly increasing the R&D department for intelligent cockpits and advanced driver assistance systems (ADAS). Porsche stated that this team will be responsible for adapting intelligent applications to the Chinese market. Porsche's Chinese R&D team was established in 2022 and was relatively small before. This is the second large-scale recruitment since the team was established.

Furthermore, the price of Porsche's Macan model in China has dropped to below 400,000 yuan, for example, the manufacturer's suggested retail price for the 2024 Macan 2.0T is 578,000 yuan, with a dealer in Shenzhen offering a minimum bare car price of 358,000 yuan, equivalent to a 40% discount. Additionally, models such as Taycan and Panamera are also undergoing significant promotions. However, despite the continuous price reductions, Porsche's sales have not shown improvement