Mercedes-Benz Faces an Open Road Today, Traffic Tomorrow -- Heard on the Street
By Stephen Wilmot
The road is unusually clear for luxury-car makers today, but
there is traffic ahead.
Daimler reported a first-quarter operating profit of about
EUR5.7 billion early Friday -- its highest quarterly number in at
least 15 years -- thanks to a high-octane performance from its
Mercedes-Benz car division. The company reported key numbers ahead
of full quarterly results next week because they were running far
ahead of analysts' expectations.
The report continues the trend set by a very strong final
quarter of 2020 for all of Germany's car makers. Customer demand
has bounced back from last year's pandemic-related shutdowns much
faster than vehicle production and manufacturers' fixed costs. As a
result, car makers have far more pricing power over consumers than
usual in an industry better known for overproduction.
The German players have the added benefit of big businesses in
China, where the post-Covid recovery is looking firmly entrenched.
The widely reported shortage in auto chips also seems to be
affecting them less than it is Detroit. That could change in the
second quarter, but if it does that might simply extend the current
period of undersupply and high vehicle prices to the manufacturers'
This gives investors good short-term reasons to own Daimler
stock, which rose 3% in morning trading Friday, as well as its
peers BMW and Volkswagen. But the horizon is clouded by the
emergence of electric-vehicle technology. Mercedes's profits are
driven by the brand's most pollutive sport-utility vehicles and
top-end sedans, not by the EVs it needs to sell in increasing
numbers to satisfy regulators and compete with a new breed of U.S.
and Chinese competitors such as Tesla, NIO and Xpeng.
On Thursday evening, after months of teasers, Mercedes took the
camouflage off its new flagship EQS model, a high-end electric
sedan that it is pitching as the EV equivalent of its
top-of-the-range S-class. This is the start of a multiyear push
that will test consumers' appetite for prestige EVs designed by the
inventor of the gasoline engine.
Investors currently seem confident that Daimler will make the
transition without much grating of gears -- even that it will
thrive. After roughly tripling since last year's lows, its market
value is now equivalent to almost half of its annual revenue,
higher than the 10-year average. At the same time, Tesla and EV
startups such as Lucid Motors are raising billions of dollars of
capital based on valuations that assume they will take market share
away from the likes of Mercedes.
As the road gets more congested, there are bound to be
disappointments -- and probably some crashes.
Write to Stephen Wilmot at firstname.lastname@example.org
(END) Dow Jones Newswires
April 16, 2021 09:11 ET (13:11 GMT)
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