Mercedes-Benz Recalling Hundreds of Thousands of Cars in China Due to Faulty Component
The German automaker Mercedes-Benz is facing significant losses, partly due to weak sales in China. Compounding these challenges, the manufacturer is now recalling over half a million vehicles in the country due to a technical defect.
The recall plan, set to begin on November 27th, was announced by the Chinese market regulation authority in Beijing. The issue revolves around the durability of the wheel speed sensor against moisture. Prolonged use in hot and humid conditions could cause the sensor to malfunction, affecting functions such as the Electronic Stability Program (ESP) and the Anti-lock Braking System (ABS).
A Mercedes-Benz spokesperson confirmed the recall, which affects nearly 242,000 imported vehicles of the A-Class, B-Class, CLA, and GLA models produced between August 30, 2011, and April 3, 2019. Additionally, around 281,000 domestically manufactured GLA vehicles produced in China between March 13, 2014, and October 12, 2019, are also included in the recall.
Mercedes-Benz Faces Financial Setback Amid Recalls and Declining Sales
The recall of hundreds of thousands of vehicles in China comes at a challenging time for Mercedes-Benz, as the company has recently revised its earnings forecast for the year. The Stuttgart-based automaker has lowered its earnings before interest and taxes (EBIT) projection, now anticipating a significant decline compared to the previous year’s value of 19.7 billion euros. The profit margin in the Mercedes-Benz Cars division is also expected to fall between 7.5 to 8.5 percent, down from the initial forecast of 10 to 11 percent.
CEO Ola Källenius had pinned hopes on new models entering the market in the second half of the year to boost business, but these expectations have fallen short. The overall pricing environment for automobiles has added pressure, contributing to the company’s financial challenges.
One of the key factors behind the downturn is the decrease in car sales, particularly in China, which is Mercedes-Benz’s largest market. The country is currently grappling with a real estate crisis, leading consumers to curb spending, even among the affluent population. This trend is not unique to Mercedes-Benz, as BMW has also revised its forecast for the fiscal year 2024 due to similar market conditions.
Impact on Stock Prices and Industry-wide Challenges
The news of the recall and revised earnings forecast has had a ripple effect on Mercedes-Benz’s stock performance, with shares plunging to a two-year low of 54.05 euros. The automotive sector as a whole, including other DAX-listed companies, experienced notable declines in stock value. The DAX index, which includes Mercedes-Benz, also saw a dip following the company’s announcement.
The challenges faced by Mercedes-Benz are reflective of broader industry dynamics, with German automakers struggling with sluggish sales and the costly transition to electric vehicles. Volkswagen reported a 14 percent decrease in profits in the first half of the year, while BMW and Mercedes-Benz saw similar declines. The crisis has also impacted automotive suppliers, exacerbated by the entry of new competitors like Tesla and Chinese manufacturers into the market.
In response to the industry’s challenges, Federal Minister of Economic Affairs Robert Habeck has organized an „Autogipfel“ or automotive summit, with major industry players, trade unions, and government representatives coming together to address the sector’s current predicament.
Outlook for Mercedes-Benz and the Auto Industry
As Mercedes-Benz navigates the recall of hundreds of thousands of vehicles in China and the broader economic challenges, the company is working to regain stability in its operations. With a focus on introducing new models and adapting to evolving market conditions, the automaker aims to rebound from the setbacks.
The automotive industry as a whole faces a period of transformation, driven by technological advancements, changing consumer preferences, and global economic shifts. As German automakers grapple with these challenges, strategic investments in innovation and sustainability will be crucial in shaping the future of the industry.