(July 26): Mercedes-Benz Group AG trimmed the upper range of a key margin forecast, on the back of a subdued outlook and strong competition in China, chiming with other carmaker warnings.

The company now expects returns in a range of 10% to 11% from its core automaking business, after previously saying margins could be as high as 12%. Profit during the second quarter declined sharply, as the industry struggled with a slump in electric vehicle (EV) demand.

The shares fell as much as 3.1% in Frankfurt on Friday. They are roughly flat this year.

Mercedes’ results cap a week of disappointing reports for the auto industry. On Thursday, Stellantis NV led a share price slump across the sector after first-half earnings nearly halved. Nissan Motor Co and Ford Motor Co also missed expectations.

Automakers are under pressure from weaker demand in China, and a drop in purchases of battery-powered cars in Europe, after governments began reducing or ending financial incentives. Only BMW AG, Mercedes’ biggest premium-car rival, has bucked the trend in Europe, after rolling out several new battery models.

While consumers in China remained cautious, Mercedes is “carefully” managing prices, chief executive officer Ola Källenius said on a call with analysts. Group earnings slumped 19% to €4.04 billion (US$4.40 billion or RM20.40 billion) in the three months through June, the carmaker said on Friday.

“We are worried about the pricing environment in the US”, as well as “the macro situation in China”, RBC analyst Tom Narayan said in a note.

Global sales of Mercedes’ passenger cars declined 3.7% to around 496,700 vehicles compared to the same period last year, with sales of fully electric vehicles falling by a quarter. Citing model changes and subdued demand in China, sales of top-end models fell 17%.

Mercedes has cut back electrification plans, including adjusting its battery ambitions, as it prepares to spend more on its lucrative line-up of combustion-engine cars. At the same time, it’s planning to roll out new all-electric models, after its first generation of battery-powered cars fell short of expectations.  

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