Big Expectations From The E-Class As Mercedes Announces Vehicle Pricing
Mercedes-Benz, owned by Daimler AG (NYSE:DAI), finally announced the pricing of its much awaited E-Class. The price of the base model, known as E250 BluTec diesel, starts at $52,325. However, the more popular E350 sedan has been priced at $52,825 or $920 more than the price of the existing version. [1] The E-Class competes directly with BMW’s 5-Series, Audi’s A6 and Lexus’ GS.
The E-Class is a litmus test for Mercedes’ profitability. The vehicle is at a nice price point, big enough to churn out decent profits while not so high so as to prevent the vehicle from gaining volumes. Sales of the E-Class were more than five times those of the S-Class in 2012.
Globally, the E-Class (including the CLS) accounts for about a quarter of Mercedes’ unit sales so it is highly critical that the model lives up to its expectations. With sales exceeding 300,000 units in 2012 and an average pricing of ~$60,000, the variant alone would have generated sales of about $20 billion. Apart from the aesthetic restyling, Mercedes has made several technological upgrades to include features such as driver assistance to remain in the same lane and warning against drowsiness. [2]
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Revival On The Cards
The market is betting on improvement of Daimler’s operating margins through an upgraded/expanded product line up in 2013. Besides the E-Class, the refreshed S-Class will also be rolled out in the U.S. by fall. Recently, Mercedes also introduced an all new vehicle called the CLA, the price of which starts from $29,900. The CLA will help the company compete directly against the likes of BMW’s 1-series and 3-series, and Audi’s A3 and A4, which are hugely popular with the younger demographic. Sales will only begin from September so the automaker could witness a strong run in at the end of the year.
The product offensive is part of Mercedes’ strategy to regain the crown of the world’s largest automaker by 2020. The year has been good for the automaker so far with unit sales rising 6% to 562,824 through May. [3]
It is important to take into account that there is a time lag between when the cars go on sale and when their numbers start making any meaningful impact on the company’s financials. Thus, it might not be before the fourth quarter or even the first quarter of 2013 that you may witness an improvement in profitability. Mercedes’ operating margins fell to a lowly 3.4% in the first quarter while Audi and BMW are constantly exceeding 10% margins. Thus, there is a significant amount of work still left to be done by the automaker. The magnitude of improvement will be decided by the level of success of these model refreshments.
We have a price estimate of $58 for Daimler’s stock, which is about 10% below the current market price.
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Notes:- 2014 Mercedes-Benz E-Class Pricing Announced, June 17, 2013, edmunds.com [↩]
- Mercedes Targets BMW With Tech-Heavy Revamped E-Class, June 13, 2013, bloomberg.com [↩]
- BMW says May brand sales up 8%, beating Audi, Mercedes, June 10, 2013, autonews.com [↩]