Source: Company Financials, Leverage Shares analysis

By a considerable margin, “Vans” are trending with the biggest growth in contribution to total revenue, gross profit and EBIT. In 2023, with revenue from “Cars” running flat and contribution to EBIT trending significantly downwards, financing division “Mobility” has been dipping in revenue contribution whilst exhibiting an increasingly higher drag on gross profit as well as EBIT. “Vans” essentially keeps the boat afloat.

In 2024, the company expects³ the “Mobility” segment’s interest margins to be under pressure for at least the first half of the year and for the 1st quarter to be under the guidance corridor previously announced. Given that rates will be “high for longer” in key North America and Europe regions, it’s quite likely that this segment will continue to be a drag for a considerably longer period.

In 2021, Mercedes-Benz had signaled a massive commitment towards offering only Electric Vehicles (EVs) wherever “market conditions allow” by 2030. To pursue this all-electric goal, the company stated in 2022 that “Vans” will be realigning its European production network around the modular all-electric VAN.EA platform with its site in Jawor (Poland) being integrated into the production network for this purpose. The company also states that it will be spending far more on the development of VAN.EA in 2024.

In the present, Mercedes Benz drops this ambitious “all-electric” target” by stating that customers and market conditions will “set the pace” of its all-electric goal while assuring “different customer needs” will be serviced well into the 2030s. As early as September last year, Group CEO Ola Källenius asserted that⁴ neither the European market nor the company’s products in the region will be all-electric by 2030. Instead, Mr Källenius hopes to maintain tactical flexibility by having the same production line roll out both EVs and ICE-powered cars. It isn’t an altogether surprising announcement, given that EV sales volumes are faltering all over the Western Hemisphere.

Overall, the company is a very important (and profitable) mover in the global automotive space, mainly by virtue of its ability to offer premium- to luxury-tier products. However, macroeconomic conditions weigh heavily on the cheaper end of its spectrum of products on offer while competition is intense on the “pricier” end.

Presently, the company’s fortunes seems to be pinned on success in the premium light commercial vehicle space via the upcoming “eSprinter”; early pre-sales/sales figure will likely give a boost to the share price but it’s more likely that its existing line-up will continue to be the big draw for customers throughout the year. Whether that shores up early trends of declines in car sales by the company or the drag induced by its financing division remains to be seen.

On the company’s stock front, Group management made an additional (interesting) announcement: it will continue with its share repurchase program from Q3 2024, for which it had allocated 4 billion Euros of which half has been completed, and then allocate another 3 billion Euros to purchase even more until Q2 2025. Following the purchase, these shares will be liquidated while a “sustainably attractive dividend target” with a payout ratio at 40% of the company’s Net Income will be pursued for the remainder.

Given the uncertainty regarding the business environment versus the company’s dominant leadership in its catered vehicle segments plus the ambitious goals for dividend payouts in an environment where sustained passive income is a highly-sought investor goal and the shoring up of value via buybacks and liquidation, it’s a very interesting “wait and see” situation.

Footnotes:

1. “Daimler Truck launched on stock exchange as an independent company”, Daimler Truck Financial News, 10 December 2021
2. “China’s Economy: In Recession?”, Leverage Shares, 22 December 2023
3. “Mercedes-Benz Outlook 2024”, Mercedes-Benz Investor Relations, 22 February 2024
4. “Mercedes-Benz: Europe likely won’t be ready for all-electric sales by 2030”, Reuters, 4 September 2023