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Investing.com -- Barclays (LON:BARC) upgraded Mercedes Benz Group (ETR:MBGn) to Equal Weight from Underweight, calling the carmaker “admittedly more solid than expected” following a series of positive developments in the fourth quarter and at the company’s recent capital markets day (CMD).
The bank also raised its price target to €57.5 from €50, citing stronger-than-expected profitability, improved product mix, and credible cost-cutting initiatives.
The bank outlines “three distinct aspects” that led to the upgrade:
1) ‘Better-than-expected Q4/H2 TEV mix:’ Mercedes-Benz’s top-end-vehicle (TEV) mix reached 15.9% in Q4, well above the levels seen earlier in the year. Given that TEVs account for around 15% of volumes but more than 50% of EBIT, this mix had a meaningful positive impact on profitability.
2) ‘...materialising in better-than-expected Q4 profitability:’ The Q4 Auto EBIT margin improved to 8.1%, up from 4.7% in Q3 and ahead of previous guidance. Barclays attributes most of this margin recovery to the TEV mix, along with the absence of warranty and battery electric vehicle destocking one-offs.
“While Mercedes Benz Group guides FY25 TEV mix below the 14.2% level of FY24, this is already reflected in its 6-8% FY25 MBC EBIT margin guide,” Barclays analysts led by Henning Cosman said.
3) ‘Constructive CMD:’ Barclays said management “executed well” during its CMD, highlighting new model launches and design changes that align more closely with consumer preferences, particularly around upcoming electric models.
While the bank continues to model 2027 EBIT margins well below the company’s guidance of at least 10%, it believes the target “bodes well," particularly in the context of its cost-cutting track record.
Barclays analysts caution that tariff risks remain a key concern. The potential for a steep increase in EU-U.S. auto tariffs was described as the “25% gorilla in the room,” though the analysts believe a step-up to a 10% tariff from the current 2.5% rate is “likely priced-in.”
Overall, the investment bank thinks the recent improvements have been enough to justify the rating upgrade.
“Better-than-expected Q4 profitability and a constructive CMD (including credible cost cutting targets and attractive model momentum) have improved the mid-term earnings outlook,” analysts noted.
With a total shareholder return yield of 11.1% on Barclays’ 2025-26 estimates, Mercedes-Benz (OTC:MBGAF) remains one of the most capital-return-focused names in the sector.