German carmaker Mercedes-Benz launched on Thursday a cost-cutting plan to revive slumping sales and margins and battle stiff competition as it forecasts a big drop in earnings in 2025.
The company's car division reported a 40% slump in 2024 earnings as sales in the key Chinese and German markets remain battered. Demand in Europe remained below pre-pandemic levels and Chinese consumers opted for more affordable domestic electric models amid an uncertain economy.
Mercedes-Benz said it was targeting a double-digit return on sales but expected a rate in the range of 6% and 8% in its car division this year.
Chief executive Ola Kaellenius said the goals come as the carmaker faces "an increasingly uncertain world." They are a sobering reassessment of the more optimistic vision it outlined in 2022 of an adjusted return on sales of up to 14% in good times and no less than 8% in difficult ones.
Europe's carmakers face a swathe of challenges this year, from tightening carbon emissions targets in Europe to rising trade tensions with the United States and fierce competition from Chinese EV startups.
Carmakers, including Volkswagen and a range of suppliers, have announced deep cuts as executives warn that the region's energy and labor costs have become uncompetitive.
Renault, however, struck a more upbeat note, reporting a record operating profit for 2024 on Thursday, beating expectations, as lower costs and a string of new launches boosted margins.
Mercedes-Benz announced on Thursday that it plans to reduce production costs by 10% by 2027. Further details were set to be provided later in the day at its earnings conference.
The cuts will go beyond an ongoing plan launched in 2020 to reduce costs by 20% between 2019 and 2025, 15% to 16% of which was already achieved, according to the finance chief.
The company forecast a bleak outlook for 2025, with group-level earnings significantly below figures from last year.
Unit sales are projected to be lower than the 1.98 million vehicles sold in 2024, a prediction likely to disappoint investors and labor representatives, who had called for a minimum sales target of 2 million cars to utilize production capacity fully.
"To ensure the company's future competitiveness in an uncertain world, we are taking steps to make the company faster, leaner and stronger," CEO Kaellenius said in a statement.
The company's board will propose a dividend of 4.30 euros ($4.50) per share, down from 5.30 euros in 2023.
