Daimler sees Mercedes margins surging to highest in years

The world’s biggest luxury-vehicle maker said it expects up to 12% annual return on sales for its cars and vans division

Mercedes is already hitting 2025 targets as a result of robust China sales. Bloomberg

Daimler predicts that its main Mercedes-Benz unit will be more profitable than it’s been in years thanks to resurgent vehicle demand in the middle of the global pandemic.

The world’s biggest luxury-vehicle maker said it expects a 10 per cent to 12 per cent annual return on sales for its cars and vans division, raising its forecast from 8 per cent to 10 per cent. That would be a historically strong showing - the car operation came up short of double-digit margins every year following Daimler’s 2007 sale of Chrysler.

“We are very confident that we can keep up the pace to improve our margins on a sustainable basis and at the same time expand our electric vehicle line-up,” chief financial officer Harald Wilhelm said. Plans to spin off and list the Daimler truck unit before year-end are “well on track”.

A year after the auto industry’s worst crisis in decades, business for German premium-car makers has roared back to record levels. Both Mercedes and BMW reported all-time high sales for the first quarter, driven by red-hot demand in China.

Getting earnings back on track will be pivotal to financing investments in electrification and software development as the industry moves towards more technologically advanced, battery-powered vehicles.

Daimler shares rose as much as 1.9 per cent on Friday in Frankfurt trading and have climbed almost 30 per cent this year.

Daimler’s supervisory board on Friday extended the contracts of Mr Wilhelm and truck chief Martin Daum until 2027 and 2025, respectively. It also appointed former Siemens chief executive Joe Kaeser to the supervisory board of the truck division and plans to nominate him as chairman.

Strong demand in China has continued during the second quarter, Mr Wilhelm said on a call with analysts. Sales in the company’s largest market soared 60 per cent in the first three months of the year.

The higher guidance for cars was “encouraging”, especially in light of production curbs related to the global semiconductor shortage, RBC capital markets analyst Tom Narayan said in a note. Premium carmakers appeared to be faring better than mass-market peers in the supply crunch, he said.