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WATCH: Mercedes profits likely to halve as problems deepen

WATCH: Mercedes profits likely to halve as problems deepen
Mercedes-Benz is being hamstrung by the development costs associated with developing electric cars. Seen here is the EQS concept, which points the way to a future electric flagship.

FRANKFURT - Mercedes-Benz parent company Daimler issued the latest in a procession of profit warnings on Wednesday, hit by costs related to the industry's diesel emissions scandal, heavy investment in electric vehicles and production problems.

The carmaker said earnings before interest and tax for last year were expected to approximately halve to 5.6 billion euros (R90bn) from 11.1 billion euros a year earlier.

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The profit warning is the third since Ola Kaellenius took over from long-standing Daimler CEO Dieter Zetsche in May, and the fifth in around 19 months.

German carmakers have been caught in the crosshairs of courts and regulators after Volkswagen admitted in 2015 to using engine control devices to cheat U.S. diesel emission tests.

Daimler's diesel pollution levels are being investigated by prosecutors in Stuttgart, Germany, as well as by the US Environmental Protection Agency (EPA) and the California Air Resources Board (CARB).

Earlier this month, investors sued Daimler for $1 billion (R14.5bn) in Germany, accusing it of concealing the use of emissions cheating software. Daimler denies wrongdoing.

As well as tighter emissions rules, carmakers are grappling with slowing demand and costly new technologies such as electric and self-driving cars.

Daimler said it expected the return on sales at its Mercedes-Benz division to slump to 4% in 2019 from 7.8% in 2018, and the figure to drop to 6.1% from 7.2% at its trucks unit.

Juergen Pieper, cars analyst at brokerage Metzler, said Mercedes' 4% margin was the weakest among German carmakers.

"Daimler is not getting its problems under control fast enough. The company is in the midst of a major crisis", he said.

Others saw scope for optimism.

"Daimler looks likely to benefit from the strong momentum of upcoming product launches from 2020 onwards, which should help achieve incremental cost savings and pricing power improvement versus peers", JP Morgan said in a note to client, adding its recommendation for the stock remained "overweight".

Sales remain robust, however. The group sold 2.34 million Mercedes-Benz passenger cars in 2019 for a ninth consecutive year of record sales, putting it in pole position to retain the title of biggest-selling premium car brand.

Given the challenges facing the industry, Daimler's cost cutting programme announced in November may soon be followed by more, said NordLB analyst Frank Schwope.

"Perhaps it is time for closer cooperation or even a merger between Daimler and BMW, although there are still various individual sensitivities that stand in the way of this," he said.

Reuters