Daimler lifts 2020 profit outlook as Mercedes-Benz margins rebound

German car maker Daimler raised its 2020 profit outlook on Friday as a 24% jump in demand for luxury cars in China in the third quarter, a new record, helped turn around margins at its Mercedes-Benz cars division.

Benefiting from improved pricing and a fall in fixed costs, adjusted return on sales at its Mercedes-Benz Cars & Vans division rose to 9.4%, up from 7% a year earlier and rebounding from minus 1.5% in the second quarter.

The car and truck maker said it now expected full-year earnings before interest and taxes (Ebit) to reach prior-year levels, compared with its previous expectation of a drop in earnings.

Daimler said it sold 45,000 hybrid and electric cars in the third quarter and expects sales to rise in the fourth quarter. These cars delivered a positive contribution to margin and would allow the carmaker to meet EU emissions goals.

“We appreciate that Mercedes can deliver very high margins while selling an increasing number of electrified vehicles (EVs). This should calm down some of the fears concerning alleged material profitability erosion from EVs,” Arndt Ellinghorst, analyst at Bernstein Research, said on Friday.

The company's adjusted Ebit rose to €3.48bn (roughly R66,543,571,500) in the quarter, up from €3.14bn a year earlier (roughly R60,000,389,345).

The results helped lift Daimler shares 2% in early trading, outperforming Germany's blue-chip DAX index, which was 0.1% lower.

However, quarterly deliveries of Mercedes-Benz Cars and Vans were down 4% as the Covid-19 pandemic continued to weigh on demand, prompting Daimler to reiterate that it expects group unit sales and revenue in 2020 to be significantly lower than the previous year.

Daimler said its outlook is based on the premise that conditions will continue to normalise and that no further setbacks occur as a result of the pandemic.