Third Time’s The Harm

Daimler profit warning

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What's going on?

For the third time in a year, Mercedes-Benz maker Daimler warned that its annual profit would be lower than expected. And investors drifted away from its stock on Monday, which fell 4%.

What does this mean?

Instead of growing, Daimler now expects this year’s profit to roughly match last year’s. And, for once, it wasn’t trade war tariffs crumpling earnings: rather, Daimler’s still being hit by the fallout of Dieselgate (tweet this)

Since 2015, the emissions scandal has choked carmakers – including Volkswagen, the world’s largest, which has paid $34 billion for its wrongdoing thus far. Now, Daimler must recall 60,000 of its Mercedes SUVs that have been found to use software that circumvents emissions rules (after proactively recalling 774,000 cars last year). Recall costs will scratch Daimler’s paintwork but an even bigger dent’s expected in European automakers overall: analysts estimate that complying with Europe’s emissions regulations will cost them a combined $8 billion.

Why should I care?

For markets: From bad to worse.

Daimler also said that its van unit – which comprises around 10% of its sales – won’t be able to reverse out of its unprofitable first quarter for the year as a whole. It now expects van sales to shrink 2-4%, partly thanks to recently trashed plans to launch a new Mercedes-Benz pickup truck in South America. This likely gave investors even more reason to drop off Daimler’s stock on Monday.

The bigger picture: Deutsche disappointment.

As German giant Daimler struggles, the mood across the rest of the country isn’t much better. A survey of German business leaders out on Monday showed a decline in corporate morale for the third month in a row, bringing it to the lowest level since November 2014 – and adding heft to expectations that the German economy itself shrank in the second quarter of 2019.

Originally posted as part of the Finimize daily email.

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