Daimler Investing Big in China Despite Slowing Auto Sales

Daimler AG (ETR:DAI) has been hit by slumping investor confidence, which has shaved around 30% off its stock price since the beginning of August. ^[1] While Mercedes-Benz sales growth globally in August 2011, up 7.9 percentage points (ppt) year-over-year (yoy) points towards continued growth; it has decelerated from 22% yoy growth experienced in August 2010. ^{[2] [3]} Within China, even though Mercedes-Benz had record sales in August 2011, it grew by only 3.2 percent yoy in contrast to 113 percent yoy sales growth in August 2010. Even though Mercedes-Benz sales in China might be bumpy in the near-term, we expect the country to re-emerge as a major growth opportunity for the luxury-car brand in medium-term. Daimler brands such as Mercedes-Benz, Smart, Maybach and Daimler compete globally with the likes of BMW (GR:BMW), GM (NYSE:GM), Ford (NYSE:F),  Honda (NYSE:HMC) and Toyota (NYSE:TM) among others.

We currently have a price estimate of $82.70 for Daimler’s stock, which is much above its market price.

Daimler’s growth outlook in China

Mercedes-Benz’s sales since the start of the year grow by around 36 percent yoy in China in spite of meager growth in August. Last month’s sales growth deceleration can largely be attributed to Mercedes-Benz’s strong sales in August of last year and China’s recent monetary tightening policy to cool inflationary pressures in its economy.

But Daimler’s expanded investment in China will keep the company in good stead in near-term. ^[4] We expect that the company’s focus on local productions of the new generation C-Class and planned new model launches will help sales growth accelerate by the end of the year. The market launch of new products such as the new SLK, the C-Class coupe and the CLS will result in greater availability of single model ranges that will support sales.

Moreover if market fears about economic slowdown in U.S. and Europe come true then global commodity prices including oil prices will subside in mid-term. This will reduce inflationary pressures in China, enabling the The People’s Bank of China to slash interest rates, which will help spur Mercedes-Benz sales in China again in mid-term.

You can drag the trend lines in the modifiable chart above to see the impact of these trends on Daimler’s stock value.

See our full analysis for Daimler’s stock here.

1. Bloomberg: German Investor Confidence Drops to 2 1/2-Year Low on Debt Crises, Sep 20, 2011 [↩]
2. Daimler: Mercedes-Benz continues upswing in August with sales increase of 7.9 percent, September 2011 [↩]
3. Daimler: Mercedes-Benz increases sales worldwide by 22 percent in August 2010, September 2010 [↩]
4. Daimler: Daimler expands Activities in China [↩]