Mercedes-Benz Walks Back EV Sales Target on Waning Demand

(Bloomberg) -- Mercedes-Benz Group AG warned that electric vehicles will remain more expensive than their combustion-engine siblings for years to come as the luxury-car maker braces for cooling demand for cars with a plug.

The manufacturer on Thursday forecast lower returns in 2024, citing challenges from a slowing economy. Mercedes also pared back its outlook for EV sales, with demand mainly in the small and medium segments where it’s not as present.

Variable cost parity between EVs and traditional cars “is many years away,” Chief Executive Officer Ola Källenius told Bloomberg Television. “You can see that in the pricing.”

Mercedes still rose as much as 5.4% — the steepest intraday gain since November 2022 — after announcing a €3 billion ($3.2 billion) share buyback program. The CEO flagged potential for additional buybacks if Mercedes can keep producing free cash flow like it has in the past years.

While the company is rewarding shareholders, its push to sell more top-end cars like the S-Class to bolster profits and fund the costly transition to battery technology is running into first roadblocks.

The carmaker long benefited from pent-up demand that helped offset some of the economic challenges. But orders are expected to normalize this year as high living and borrowing costs weigh on consumption. The company also needs to deal with fierce competition in its key market China — where it plans to introduce 15 new models this year — and pressure from Tesla Inc.’s frequent price cuts.

“The macro environment is quite challenging,” Källenius told Bloomberg TV. “We still have the effects lingering from the higher interest rates and China is going through some structural challenges.”

Automakers have grown more cautious on battery technology. Sales of fully electric cars this year are set to grow at the slowest rate since 2019, according to BloombergNEF, with the unexpected stall in momentum intensifying competition. Late last year, Mercedes rival Audi said it’s paring back its EV rollout.

Mercedes is forecasting an automaking margin of as low as 10% this year on roughly stable unit sales. Profitability came in at 12.6% last year — toward the lower end of guidance.

The share of fully electric and plug-in hybrid vehicles will remain roughly stuck at between 19% and 21% of Mercedes’ sales this year. The manufacturer also pared back its medium-term outlook for the technology, and now expects EVs to account for half of sales in the second half of the decade rather than in 2025.

Mercedes is betting on its next-generation EVs due from around mid-decade to make a real difference, with variable costs for the platform expected to be 30% lower. Models include an electric version of the CLA, a medium-segment sedan rated to go more than 750 kilometers (466 miles) on a charge, beating Tesla’s refreshed Model 3.

“I don’t think anyone had ever thought that the once-in-a-century transformation of the auto industry will be a straight line,” Källenius said. “There will be peaks and troughs.”

(Updates with China lineup revamp in sixth paragraph)

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