New A-Class Orders Will Help Mercedes Sales To Keep Rolling

Daimler AG (NYSE:DAI), which recently announced its weak Q3 earnings, has finally got something going good for it. The German automaker announced that it has received a total of 90,000 orders for the new, revamped 2013 version of its A-class. The refreshed A-class was unveiled at the Geneva Motor Show in March and deliveries began in late September. ^[1]

Mercedes sold a total of 192,000 for its A and B-class combined in 2011, so the pre-order figures suggest that there could be a significant upside to this figure in 2012 as well as 2013, when the full effect of the revamped model takes place. ^[2] Moreover, higher vehicle sales will bring in more secondary business like after-sales services and annual maintenance contracts. The success of the new A-class could also spill over to the next year’s launch of the newer versions of C-Class and E-Class.

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Given that Mercedes will probably sell around 1.3 million cars globally in 2012, the initial sales are a significant percentage of the total sales. If the annual sales could touch 200,000 vehicles for the full year (in 2013), which is not unreasonable to assume given the initial response of the car, A-class sales would itself account for about 15% of the total sales. The 2013 A-class is produced in Hungary as well as Germany. Hungary is the automaker’s low-cost production facility so a higher percentage of vehicles delivered from this plant will benefit the overall margins as well.

China Could Do Better

There is further upside for A-class sales. The revamped, 2013 version of the A-class has still not been launched in China and won’t be till mid-2013. Thus, we could see an acceleration of sales next year once the effect of Chinese sales kicks in. Mercedes would have hoped to do better in China as sales of its German rivals sail past its own sales. B-class sales were also affected due to a production glitch, earlier in the year, which restricted its deliveries.

B-class production is back on track now and the company has even launched B-class Tourer in August. With this and the new A-class to debut next year, we could see Daimler closing in on its German rivals. Mercedes is also adding dealers at the rate of 50 per year in the country as a lack of dealers across the country is limiting its sales. Mercedes’s global sales are up 5% to 1.07 million through October in 2012 whereas the sales of Audi and BMW had already surpassed 1.1 million before the start of October. ^[3]

We have a price estimate of $56 for Daimler’s stock, which is about 20% above the current market price.

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1. Daimler has 90,000 orders for revamped A-Class – Report, November 14, 2012, reuters.com [↩]
2. Daimler Annual Report 2011 [↩]
3. Mercedes hurt by another weak sales month in China, November 6, 2012, economictimes.indiatimes.com [↩]