Why Daimler’s Stock Has Been Cruising Lately

April 1st, 2014 by Trefis Team
DAI: DAIMLER AG logo
DAI
DAIMLER AG

After a strong second half showing in 2013, Daimler AG has once again restored the confidence of the investors. The general consensus is that the sales momentum will continue into 2014 and that the company is likely to witness further operational improvements. In addition to the Mercedes-Benz brand, the company also sells buses and trucks under the Daimler brand. Cars and vans sold under the Mercedes brand account for more than 70% of the valuation, as per our estimates. Shares of Daimler have gained close to 10% this year, helped by strong Q4 earnings announced by the company earlier in February.

See full analysis for Daimler AG

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Mercedes introduced and refreshed a number of models in 2013, including the E-Class, S-Class and the new CLA. The new models helped Mercedes sell 7% more vehicles in 2013, in addition to widening the operating margins. The product offensive is part of Mercedes’ strategy to regain the crown of the world’s largest automaker by 2020. In total, the automaker will launch 30 new or refreshed models in the given time frame.

In 2014, the automaker will introduce the refreshed version of the C-Class, which accounts for more than a fifth of the vehicles sold under the Mercedes brand. It is also introducing the GLA crossover, which is built on the same platform as the A-Class and the B-Class, but is likely to have fatter margins. The new models will also use a greater proportion of common parts due to the nature of the architecture used in these vehicles. This should help cut the costs and boost the overall profits.

Chinese Sales Continue To Improve

Mercedes sold 11% more vehicles in China in 2013, but sales were flat during the first half of the year. Sales accelerated during the second half of the year, helped by an expanded portfolio, a better dealership network and an improved sales network. Daimler is also manufacturing more vehicles in China in order to by pass the country’s high import duties. In August 2013, the automaker announced its decision to pour 2 billion euros ($2.75 billion) to raise the level of production in China. Prior to this investment, Mercedes imported half of its vehicles in China. These investments are already having the intended effect, with unit sales up 57% in the first two months of the year.

If sales continue to surge, Mercedes could raise the production level even further, implying a further investment of 1 billion euros ($1.37 billion). The automaker also plans to expand its dealership network across the country. Last year, 75 new dealers were added and another 50 will be added annually for the next two years. [1] Overall, Mercedes plans to sell 300,000 vehicles annually in China by 2015, up from 218,045 units in 2013.

Mercedes’ European sales are also extremely critical to the company’s bottom line. In fact, Western Europe accounts for half of Mercedes unit sales. The European auto market declined in 2013, but the recent sales figures suggest that the market has bottomed out and should be in the green in 2014. Thus, any improvements in the overall automotive market should benefit all automakers, including Mercedes. The automaker’s European sales are up a solid 7.3% through February, compared to 6.3% gains for the entire industry. [2]

Global sales of the world’s largest luxury automaker, BMW, have jumped 6.5% through February. [3] Similarly, Audi’s sales grew 9.3% on a year-over-year basis. [4] Mercedes, on the other hand, has posted sales gains of 16.6% in the first two months of the year. [5] Thus, there is a growing belief that Mercedes is getting its strategy right and that it can close the gap with its German rivals.

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Notes:
  1. Mercedes to Double Beijing Factory Capacity as China Sales Soar, March 28, 2014, businessweek.com [↩]
  2. European car sales rise 8% in February as region’s economy revives, March 18, 2014, europe.autonews.com [↩]
  3. BMW Targets 2 Million Deliveries in 2014 on China Growth, March 4, 2014, businessweek.com [↩]
  4. audiusanews.com [↩]
  5. Mercedes-Benz posts sales increase of 16.5% in February, March 6, 2014, daimler.com [↩]