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Mercedes-Benz’s profits have been hit by a “brutal” price war in electric vehicles as demand lags behind in the face of a weaker economy.
It forecast adjusted profit margins this year at the lower end of its previously guided 12 to 14 per cent range because of a “subdued” economy, “intensified pricing competition” and shortages of 48-volt batteries.
The warning hit the German premium carmaker’s shares, which tumbled 5 per cent to €58.05 in Frankfurt by late morning.
Chief financial officer Harald Wilhelm told analysts that while Mercedes had drawn a “red line” in terms of how low it would go on price, he had seen rivals offering discounts of nearly a third.
Others were pricing more costly electric vehicles at the same range as combustion engine models, he added. “I would say this is a pretty brutal space.”
Carmakers have in recent years been able to increase prices significantly and boost margins, partially because shortages of semiconductors caused demand for cars to exceed supply markedly.
Volkswagen also on Thursday warned that its profit margins were coming under pressure because of higher production costs and stronger sales of less expensive cars.
Shares in the Wolfsburg-based group fell 1 per cent to €99.83 by late morning.
VW chief executive Arno Antlitz warned of a “reluctance” in Europe towards electric vehicles, but added that he expected the relaunch of electric models ID. 4 and ID. 5 next year, which are to be equipped with better technology and software, to help boost demand.
VW, which also owns Porsche and Audi, last week cut its full-year profit guidance, announcing losses of €2.5bn because of negative effects from raw material hedging.
In the first nine months, the VW brand reported margins of 3.4 per cent.
Porsche on Wednesday warned that luxury brands were not immune to subdued spending as the company prepared to raise prices on its cars in China amid slowing sales.
In the UK, the median price tag of a new Mercedes jumped roughly 39 per cent in the past three years, according to Auto Trader.
But with high interest rates and a generally gloomy economic outlook, a growing number of consumers are now questioning whether to buy a new car.
Citi analyst Harald Hendrikse called Mercedes’ results “solid . . . despite an intense pricing environment” but warned that increased pricing pressures were likely to further damp margins.
He said that VW electric vehicle sales were expected to improve, adding that he believed new chief executive Oliver Blume could successfully manage to reduce the cost of running the company.
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