Daimler Warns on Profits, Aims to Cut Labor Costs
November 14 2019 - 8:50AM
Dow Jones News
By William Boston
BERLIN -- Daimler AG said it would cut more than 1,000 executive
positions as part of a plan to reduce labor costs by $1.1 billion
by 2022, but warned that this and efforts to meet stricter emission
targets would dent profits for the next two years, causing a sharp
fall in the Mercedes-Benz maker's shares.
The auto industry is being squeezed by the high costs of
developing new electric cars, which are yet to generate big sales
volumes. Consumers continue to be skeptical of electric models,
shunning the high price of the vehicles and fearing the
inconvenience of charging or getting stranded on the road with a
dead battery.
Premium manufacturers such as Daimler, Audi AG and BMW AG, are
also under pressure from a growing number of competitors, including
Tesla Inc. and Volvo Cars, which are quickly catching up to their
German rivals. Elon Musk, Tesla's founder and chief executive, said
this week he would build a Tesla factory near Berlin.
The increased competition and high costs of cutting
greenhouse-gas emissions are weighing on Daimler, which has lowered
its profit forecast three times in the past year.
Daimler Chief Executive Ola Källenius told investors at an event
in London on Thursday the cuts would come mainly at the
Mercedes-Benz car brand in Germany.
"The cost burdens to reach the targets on carbon-dioxide
emissions require far-reaching measures to increase efficiency in
every area of our company," Mr. Källenius said. "This will weigh on
our earnings in 2020 and 2021."
The profit warning sent Daimler's shares down as much as 4% at
the opening on the Frankfurt stock exchange. By midday, shares had
clawed back some ground and were trading about 3% lower at EUR51.91
($57.15).
Mr. Källenius, who succeeded Dieter Zetsche as CEO in May, said
the company had to rein in the costs of meeting stricter
restrictions on emissions, which are driving a push into electric
vehicles and less-polluting combustion engines.
"We have a worst-case situation now -- low volume and first
generation technologies. But we will raise volumes over time," Mr.
Källenius said.
With so much uncertainty about the viability of new electric
cars or new business models such as ride-hailing and car-sharing,
auto makers are spending heavily to dabble in a variety of ventures
to figure out which technologies and businesses can make money. As
a result, capital expenditure has soared and remains high with few
solid returns.
"Daimler urgently needs to move away from its 'spray and pray'
investment philosophy and toward a materially more focused,
sharpened allocation of its funds," Arndt Ellinghorst, an
automotive analyst with Evercore ISI, said in a note ahead of the
investors' meeting. "Otherwise, the group will simply be unable to
self-fund its premium mobility aspirations," he added.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
November 14, 2019 08:35 ET (13:35 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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