How Much Is The A-Class Worth To Daimler ?

Mercedes, owned by Daimler AG (NYSE:DAI), recently announced that it had received more than 90,000 orders of the new A-class; 70,000 in Western Europe alone. The car has received pretty good reviews on its looks, the engine and safety as well as on other features such as the emergency braking anti-collision systems, driver fatigue monitors and tire pressure warnings. [1]

Moreover, the new A-class is young, sleek and trendy – adjectives the automaker aspires to be associated with. This will help the company appeal to the younger lot and change its image of being the grandparent’s luxury car. The average age of a millionaire has declined globally and many of these younger drivers generally prefer the BMWs and the Audis since Mercedes has one of the oldest portfolios among the major luxury car makers.

The sales of BMW 1-Series will probably touch 250,000 units in 2012 so it’s fair to assume that the new A-class can clock similar figures next year, especially given the initial response. Thus, the new A-class could itself account for about 15% of the automaker’s global sales in 2013. Moreover, the car has yet to be launched in a number of markets such as China, South Korea and India, and we could see a significant addition to the projected number.

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How Much Additional Top-Line Can It Add ?

The price of the model varies depending on the specifications and from country to country. In Germany, the lowest priced model costs around 24,000 euros but can go as high as 50,000 euros. Since this contains the government taxes and the dealer margins and the sales of a model are generally skewed towards the lower priced model, we assume Mercedes generates a revenue of about 25,000 euros per model. Now, multiplying this with the >200,000 unit sales in 2013, you could be talking in excess of 5 billion euros of sales generated by this car alone.

Moreover, the extra unit sales will bring in additional secondary revenues though after-sales and annual maintenance. Thus, the total revenue associated with this car could be in the region of 6 billion euros. Unit sales of A-class and B-class combined were about 190,000 units in 2011. [2] Assuming A-class sales were in the region of 110,000-120,000 units, A-class probably generated revenues of about 3 billion euros in the previous year. Thus, the new 2013 A-class could itself generate an additional top-line of 3 billion euros or about 4% of Mercedes’ revenues. Given that the car maker is struggling to post 5% top-line growth currently, that’s not so bad, is it ?

As for the bottom line, it is safe to assume that the company wide margins of 7% can be applied to this car as well. Thus, this could be around $200 million of additional EBITDA.

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

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. Mercedes-Benz A-Class (2013) pictures and hands-on, November 19, 2012, []
  2. Daimler Annual Report 2011 []