Mercedes-parent Daimler warns the costly transition to electric cars is forming a triple-threat to future profits

ReutersFILE PHOTO: A Mercedes-Benz Concept IAA car is displayed prior to the Daimler annual shareholder meeting in Berlin
  • Mercedes-builder Daimler anticipates its transition to electric vehicles will further squeeze profits until 2022, Bloomberg reported Thursday.
  • The margin headwinds call for job cuts and capped development spending, CEO Ola Kallenius said at his first major strategy presentation since assuming the role in May.
  • The costs associated with electric-vehicle development join trade-war hurdles and stricter European Union emissions laws as significant pressures against Daimler’s future earnings.
  • Watch Daimler trade live here.

DaimlerCEO Ola Kallenius expects profit pressures to persist through 2021 as the Mercedes-parent continues its transition to electric vehicles, Bloomberg reported Thursday.

The chief executive, who assumed the post in May, announced a plan to slash investment and cut its workforce to save more than $US1.4 billion and boost margins. Daimler is in the midst of a shift to electric vehicles while also facing stricter European Union emissions standards and global trade-war hurdles.

Daimler already issued two profit warnings in 2019, and the CEO’s latest statement noted that the auto giant’s earnings will face similar pressures for the next two years.

“To remain successful in the future, we must therefore act now and significantly increase our financial strength,” Kallenius said in his first major strategy presentation since becoming CEO. He noted that “comprehensive measures to increase efficiency” are required throughout the company.

The German company now anticipates margins of 4% in 2020 and 6% in 2022, according to Bloomberg. Its truck business expects margins of more than 5% in 2020 and 7% in 2022.

Daimler shares tumbled as much as 4.7% on the news.

Kallenius announced capital expenditures and development costs will remain at 2019 levels, and investments will be closely monitored to keep enough cash for liquidity. The auto giant also plans to cut 10% of management positions in its Mercedes division and an undecided number of “indirect” administrative positions, Bloomberg reported.

“In the automotive industry we are facing difficult times. We have to face this reality, but we must not save on the future viability of our company,” Daimler employee representative Michael Brecht told Bloomberg in a statement.

Daimler plans to release more than 20 new plug-in hybrid and fully electric Mercedes models by 2022 in its bid to compete with Tesla, Porsche, and other major automotive players. Though many models will share platforms to reduce costs, electric cars still require lofty development expenditures. Legacy parts like combustion engines and gearboxes have to be swapped for batteries and advanced electronics, which also require expensive shifts in assembly line processes.


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