Mercedes-Benz is facing significant losses, partly due to weak sales in China. To compound their troubles, the automaker is now recalling hundreds of thousands of cars in the country due to a defect.
The German automaker Mercedes-Benz has issued a recall for over half a million vehicles in China due to a technical flaw. The company has presented a plan that will go into effect on November 27, as announced by the Chinese market regulation authority in Beijing.
The recall is related to a problem with the moisture resistance of the wheel speed sensor in the affected vehicles. 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 spokesperson for Mercedes confirmed the recall. According to the Chinese authority, nearly 242,000 imported A-Class, B-Class, CLA, and GLA models produced between August 30, 2011, and April 3, 2019, are affected. Additionally, around 281,000 GLA vehicles manufactured in China between March 13, 2014, and October 12, 2019, are also included in the recall.
The ongoing challenges for Mercedes-Benz have been reflected in their financial outlook. Just recently, the company revised its earnings forecast for the year, marking the second reduction in two months. Mercedes now anticipates a significant decline in Earnings Before Interest and Taxes (EBIT) compared to the previous year’s figure of 19.7 billion euros. The projected profit margin for the Mercedes-Benz Cars division has been adjusted to 7.5 to 8.5 percent, down from the initial estimate of 10 to 11 percent.
Mercedes-Benz CEO Ola Källenius had pinned hopes on new models entering the market in the latter half of the year to stimulate business. However, these expectations seem to be falling short. The general pricing environment for cars has also been challenging for Mercedes-Benz, with the company citing a „dynamic pricing landscape.“
One of the key factors contributing to the negative developments is the decline in car sales in China, including luxury vehicles. China serves as the most critical market for Mercedes-Benz, yet a slowdown in consumer spending, particularly amid an ongoing real estate crisis, has impacted sales. The reluctance of both ordinary and affluent consumers to make purchases has resulted in reduced demand for luxury vehicles from Mercedes-Benz and competitors like BMW, which also recently adjusted their forecasts for the fiscal year 2024.
Industry expert Ferdinand Dudenhöffer highlights China as a major stress test for German automakers, emphasizing the growing significance of electric vehicles in the market. Germany and Europe have fallen behind in this regard, as over half of the cars sold in China are now electric. Dudenhöffer advises German automakers to strengthen their investments in China to establish and expand development centers and production facilities for electric vehicles.
The implication of the crisis is evident in the stock performance of Mercedes-Benz, with shares plummeting by up to 8.4 percent to a two-year low of 54.05 euros. This decline has also had a ripple effect on other automotive stocks in the DAX index, which had recently reached a record high but saw a drop of 0.59 percent to 18,889.41 points at the start of trading on Friday.
The challenges faced by German manufacturers extend beyond Mercedes-Benz, with Volkswagen, BMW, and automotive suppliers grappling with sluggish sales and high costs associated with transitioning to electric propulsion. Both Volkswagen and BMW reported double-digit decreases in profits, mirroring the struggles of Mercedes-Benz. The industry landscape is further complicated by the emergence of new competitors like Tesla and Chinese automakers entering the market.
Amidst the industry turmoil, German Federal Minister for Economic Affairs Robert Habeck has scheduled a visit to the Volkswagen plant in Emden as part of his ongoing company tour. Additionally, a summit dubbed the „Autogipfel“ is set to take place next Monday, bringing together representatives from major automakers, suppliers, and industry stakeholders to address the challenges facing the automotive sector.
As the automotive industry grapples with unprecedented challenges, the need for innovation and strategic adaptation has never been more crucial. The shifts in consumer preferences, regulatory landscapes, and technological advancements necessitate a proactive approach from automakers to navigate the evolving market dynamics successfully.
