Daimler Warns on Profits, Aims to Cut Labor Costs
November 14 2019 - 12:23PM
Dow Jones News
By William Boston
BERLIN -- Daimler AG's share price fell more than 4% after the
Mercedes-Benz maker said it aims to reduce labor costs by $1.1
billion by 2022 and warned that costs associated with job cuts and
efforts to meet stricter emission targets would dent profits for
the next two years.
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
because of high prices, the need to charge a battery or the fear of
getting stranded 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 job cuts would come mainly at the
Mercedes-Benz car brand in Germany. The company plans to cut more
than 1,000 executive positions.
"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."
Daimler's closed down 4.4% on Thursday, at EUR51.19 ($56.35), on
the Frankfurt Stock Exchange.
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 12:08 ET (17:08 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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