Mercedes raises guidance as luxury demand boosts revenue

Mercedes expects demand for its luxury models to continue to rise in the second half of the year even as recessions loom in the US and Europe after it beat expectations over the past three months in the second quarter.

The German carmaker said on Wednesday it now expected 2022 revenues to be “significantly above” last year’s and earnings before interest and tax to be “slightly above” the €16bn it reported in 2021.

Auto profit margins were likely to be 12-14 per cent, the company added, compared with more than 13 per cent last year, but it warned that the global economy was “characterised by an exceptional degree of uncertainty” which could further affect the supply of energy and raw materials.

The announcement from Mercedes comes just a day after the IMF warned that the risk of a global recession “has gone up”, and gas supplies from Russia to Europe via the Nord Stream 1 pipeline dropped further to about 20 per cent of their normal volumes, threatening Germany’s economy.

However, chief executive Ola Källenius said Mercedes was “experiencing strong demand both in Europe and the US, as well as in China — with large order backlogs”, which helped the group achieve “very solid profitability” in the past few months even as it battled supply chain bottlenecks.

Mercedes has been steadily reducing its number of so-called entry-level models in favour of more profitable higher-end cars. It delivered almost 40,000 fewer compact vehicles — including Smart cars — in the second quarter compared with the same period in 2021, resulting in a drop in overall sales of about 7 per cent.

Nonetheless, Mercedes’ revenues in the three months to the end of June rose by 7 per cent year on year to €36.4bn, while earnings before interest and tax rose by 6 per cent to €4.6bn.

“The results show a company that is in rude health,” said Bernstein analyst Daniel Röska. “Without further disruptions, the company may yet have the potential to continue improving its outlook” for 2022.

Källenius added that Mercedes would be able to reduce its dependence on natural gas in Germany by about 50 per cent by the end of the year, by relying more on electricity and implementing energy-saving measures.

In the event of continued gas supply restraints, Germany’s Federal Network Agency would ration gas deliveries to industry, although the government has yet to outline precisely how such a scheme would work.