Porsche and Mercedes-Benz Group are planning to cut costs after fierce competition and weaker demand for their luxury cars in China hit their profits.
Porsche is reviewing its model lineup after a drop in sales and profits during the first nine months of the year.
Earlier on Friday (25), Mercedes reported its lowest profit margin in almost three years, after selling fewer expensive models, such as the S-Class limousine.
German brands are struggling in the world’s biggest car market, where local manufacturers led by BYD are taking control. They are also struggling with weak demand for electric vehicles in Europe after several countries reduced subsidies.
The problems have caused a recent wave of earnings revisions from automakers including BMW and Porsche parent Volkswagen.
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Mercedes’ key profitability indicator fell to 4.7% in the third quarter, below its minimum target of 8% and the lowest level since the automaker spun off its truck business at the end of 2021.
Porsche’s third-quarter vehicle deliveries in China fell to their lowest level in a decade.
“The third quarter results do not meet our ambitions,” said Mercedes Chief Financial Officer Harald Wilhelm. “We are taking a prudent view on future market developments and will intensify all efforts to increase efficiency and improve costs across the company.”
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Mercedes shares fell 1% in Frankfurt and are down around 8% this year.
Porsche said it is maintaining its full-year guidance, betting that demand will recover in the final months of the year. The company had lowered its outlook in July, saying it expected a return on sales of up to 15%.
The results contrasted sharply with those of Tesla, which saw its shares rise the most in 11 years after the company reported surprisingly strong earnings and profit margins. The North American manufacturer projected an increase in deliveries in the final quarter, while Mercedes said its sales would remain at a similar level.
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China’s economic slowdown has hit German automakers hard, with reduced luxury spending weighing on orders for Porsches and Mercedes’ high-end S-Class and Maybach models. The slowdown in China had already forced Mercedes to cut its sales outlook for 2024 and reduce adjusted profit margins for its car unit.
Porsche plans to reduce its dealership network in China to cut costs, Chief Financial Officer Lutz Meschke said. The company also aims to reduce costs in its research and development division, he said. Mercedes did not detail where the cuts would be made.
Both companies operate factories in Germany, where labor and energy costs are relatively high. They are also investing heavily in the shift to electrification, while also producing hybrid-electric models such as the Porsche 911 sports car.
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Mercedes’ car manufacturing profitability figure is likely the lowest since the second quarter of 2020, when sales and production were hit by disruptions during the early stages of the coronavirus pandemic.
The company did not publish figures just for its car production margin until its split from Daimler Truck, instead providing a combined number for cars and vans.
Chinese manufacturers are dominating the electric vehicle market due to their lower production cost, Porsche’s Meschke said. Although the CFO said the third quarter was the weakest of 2024, he warned that sales in China will remain depressed next year.
“We cannot assume that China will return to the levels we saw previously,” Meschke said.
