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Shares in Mercedes-Benz Group (LSE:0NXX) experienced a significant drop on Friday following the company’s decision to reduce its full-year guidance, primarily due to ongoing challenges in the Chinese market. The German automaker announced that its adjusted return on sales is now projected to be between 7.5% and 8.5% for the year, a considerable decrease from the previous guidance of 10% to 11%.
For the second half of the year, the expected adjusted return on sales is anticipated to be around 6%. The company attributed this downward revision to a further deterioration in the macroeconomic environment, particularly in China. Economic growth in the country has slowed, driven by weak consumption and a persistent downturn in the real estate sector, which has negatively impacted sales volumes, including those in the luxury segment.
Mercedes-Benz stated that the sales mix for the second half of 2024 is likely to remain unchanged compared to the first half, indicating a continued struggle to meet earlier expectations. Full-year earnings before interest and taxes (EBIT) are now forecasted to be “significantly below” last year’s level of €19.7 billion, contrasting with the previous guidance suggesting EBIT would be “slightly below” that figure.
As a result of these developments, the stock plummeted by 7.4%, trading at €54.64 by 09:45 in Frankfurt. The shares even touched a 52-week low of €54.05 earlier in the session.
The challenges in the Chinese market are particularly concerning, as it has been a critical growth area for many global automotive manufacturers. The luxury market, once thriving in China, is facing significant headwinds that are affecting sales performance. With these macroeconomic challenges, Mercedes-Benz's ability to maintain profitability and market share in this key region is under scrutiny.
Overall, the latest announcement underscores the pressures facing the automotive industry in a rapidly changing economic landscape. Stakeholders and analysts will closely monitor how Mercedes-Benz navigates these difficulties, particularly in China, and what strategies the company will employ to stabilize its performance in the coming quarters. The market response reflects broader concerns about the resilience of the luxury automotive sector amidst economic uncertainties.
