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Earnings call: Mercedes-Benz targets stable margins amid EV transition

EditorNatashya Angelica
Published 22/02/2024, 19:04
Updated 22/02/2024, 19:04
© Reuters.

Mercedes-Benz (OTC:MBGAF) (ticker: MBG) discussed its financial strategy and outlook during the Annual Results Press Conference Call in 2023, highlighting a focus on maintaining margins through cost management and disciplined investment, particularly in the electric vehicle (EV) segment. The company expressed confidence in its cash flow stability and potential for share buybacks, while also considering divestiture from the Daimler Truck stake to enhance cash flow. Mercedes-Benz is adjusting its volume and pricing strategies to align with market conditions, aiming for stable pricing and prioritizing market share over aggressive pricing for sustainable growth. They are confident in achieving their EBITDA margin target of 16% by 2023 and are aiming for a 10-12% margin in 2024. The company also touched on its performance in China and its plans to launch the new E-Class in the competitive Chinese EV market.

Key Takeaways

  • Mercedes-Benz plans to maintain margins through cost focus and disciplined investment in EVs and infrastructure.
  • The company expects cash flow stability and sees potential for share buybacks, with a possible divestiture from the Daimler Truck stake.
  • Aiming for cash conversion targets of 0.8 to 1 for 2024 onwards.
  • EBITDA guidance of 16% by 2022-2023 is on track, with a focus on reducing fixed costs and investments by 20% by 2025.
  • Plans to increase xEV share for CO2 emission targets and launching new models like the EQS in June 2024.
  • The company aims to defend market share through product substance and is cautious about aggressive pricing.
  • EBIT margin for EVs is targeted at double digits, aiming for 12-14%.
  • Solid performance in China in 2023, with a cautious outlook for 2024 and a new E-Class launch for momentum.
  • A Mercedes Benz (ETR:MBGn) ESG Conference is scheduled for March 20.

Company Outlook

  • Mercedes-Benz is confident in its current architecture supporting future updates and development.
  • The medium-term plan has been updated to adjust volume based on market conditions and product launches.
  • Investments are on track, and the company aims for continued efficiency improvements.

Bearish Highlights

  • There are uncertainties regarding policymaking for EVs.
  • The impact of losing 100,000 units in 2023 on EBIT suggests that the majority may not be recouped in 2024.

Bullish Highlights

  • The company is confident in achieving an EBITDA margin of 16% by 2023.
  • Divestiture from Daimler Truck stake post-lockup period could boost free cash flow.
  • Strong performance in China is expected to continue, with disciplined growth in the competitive EV market.


  • Market share losses beyond 2024 could occur if the company cannot maintain stable pricing and market share through product substance.

Q&A Highlights

  • Discussed BEV pricing, residual values, and capitalization, with a focus on value creation for the future.
  • Potential for a stable or rising dividend, considering exceeding a 40% payout ratio.
  • Participation in discussions on protectionism between the EU and China.

In summary, Mercedes-Benz is navigating through a critical phase in the automotive industry as it transitions towards electric mobility, balancing the need for investment in new technologies with the necessity to maintain financial stability and shareholder value. The company's strategy revolves around disciplined cost management, strategic investments, and a focus on maintaining a strong market position. With an eye on the future, Mercedes-Benz is positioning itself to capitalize on the growing EV market while ensuring its financial targets are met.

InvestingPro Insights

As Mercedes-Benz (ticker: MBG) continues to navigate the competitive and rapidly evolving automotive landscape, particularly in the EV segment, it's important to consider the company's financial health and market position. According to InvestingPro data, Mercedes-Benz boasts a robust market capitalization of $80.52 billion, underscoring its significant presence in the industry. The company's P/E ratio stands at an attractive 5.02, which further adjusts to 4.64 when considering the last twelve months as of Q3 2023, indicating that the stock could be undervalued relative to earnings.

InvestingPro Tips highlight that Mercedes-Benz has a high shareholder yield and has consistently raised its dividend for 3 consecutive years, with a notable dividend yield of 7.43% as of 2023. This commitment to returning value to shareholders is commendable, especially considering the company's ability to maintain dividend payments for 13 consecutive years. Moreover, the stability of Mercedes-Benz is reflected in its low price volatility, reassuring investors looking for a less turbulent investment experience.

With the company's strong focus on maintaining margins and managing costs, as discussed in the article, these financial metrics provide additional context to the overall strategic direction of Mercedes-Benz. The company's efforts to sustain cash flow and consider strategic divestitures, like the Daimler Truck stake, are aligned with its objective to enhance shareholder value.

For readers interested in deeper analysis and more InvestingPro Tips, including insights on earnings revisions and the company's valuation multiples, visit There are over 13 additional tips available on InvestingPro, which could further inform investment decisions. To access these insights, use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Full transcript - Daimler Ag OTC (MBGAF) Q4 2023:

Operator: Welcome to the Annual Results Press Conference Call 2023 of Mercedes-Benz. At our customers' request, this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the Mercedes-Benz website. The short introduction will be directly followed by a Q&A session. [Operator Instructions]. I would like to remind you that, this telephone conference is governed by the Safe Harbor wording that you find in our published results documents. Please note that our presentations contain forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. May I now hand over to Steffen Hoffmann, Head of Mercedes-Benz, Investor Relations and Treasury? Thank you very much.

Steffen Hoffmann: Good morning, everyone. On behalf of Mercedes-Benz, I would like to welcome you on board the telephone and the Internet to our Annual Results Conference Call 2023. I am very happy to have with me today, Ola Kallenius, our CEO, and Harald Wilhelm, our CFO. You probably all joined our presentation right before, just as a quick reminder, the respective capital market presentation with all '23 figures, and the outlook for '24 can be found on our IR website. You may ask your questions now I will identify the questioner by name. However, please also introduce yourself with the name and the name of the organization that you're presenting, before asking your question. A few practical points. Please ask the questions in English. And as a matter of fairness, please try to limit the number of questions to a maximum of two. And before we start, as always, the operator will explain the procedure.

Operator: [Operator Instructions].

Steffen Hoffmann: And we start the Q&A. First question goes to Tim Rokossa from Deutsche Bank.

Tim Rokossa: Yes, thank you very much, gentlemen. And good morning, Tim from Deutsche Bank. Very well done, first of all in the share buyback program. Harald, you and I were discussed about the structure for many years now. What you just return in your market capital is really strong commitment, exactly the right message. And secondly, you've been to questions please. Harald, some of those things in the numbers were not so great. The Mercedes margin is now down several quarters in a row. There were fairly high capitalization ratios. The full year outlook suggests that it's down a little bit at least over last year at the midpoint Q1 starting weaker. There are reasons for that. But how confident are you that the 48 valid issues indeed fixed in Q2? How do you intend to keep prices stable and ultimately channel on the margin development? And then secondly, Ola, this is perhaps for you. You already discussed about the slower than expected EV ramp. There's all sorts of reasons for that. Do you expect it to result in a further softening of the regulation? We already discussing that in the U.S.? Do you also see happening in Europe? And given that your investments now need to stay elevated for a longer period of time? Would you also think about partnering up with guys like it's being discussed in the European mass market? Thank you very much.

Harald Wilhelm: Yes, thank you, Tim. So let me get started with the first question on the margin evolution. I think we, when we talked about the quarter four for the first time, at the end of the quarter sleeve, we said we would expect our fourth quarter to be at about 10%. I think that's what we delivered. However, we also said mean that the fourth quarter should not be a proxy for 2024. I think with the guidance you heard from me today, of 10% to 12%. That's exactly what it says. If the fourth quarter would be a proxy, we wouldn't not have guided 10% to 12%. How can we get there? You heard that we have the ambition to keep the pricing stable. The backbone of our is obviously the park and the product substance was a lot of great vehicles in the market and others to come. So that supports it. And overall our policies, as you can also see in the sales guidance, they’ll be definitely I mean prefer the value over the volume. So, here you -- I would say you see the response in that. So what else, third and fourth quarter last year was impacted by charges on supply chain side. On inflation related capacity, adjustments, and so forth, we said that I mean, they basically refers to the full year 2023. So, now I mean with the raw mats turning and the efficiency efforts, Ola emphasized on the material costuming at large, we want to gain tailwind on material cost in 2024. So, I think all of it means supports the fourth quarter was a 10% should not be the proxy. However, one point I alluded to, I would say in the call before it was in presentation before is the first quarter, the 48-volt, back to your question. It still lasts into the H1, I think operationally it's improving, but it's still impacting availability of vehicles. And some other issues in the first half, in particular I mean in the first quarter. And that's why we said the first quarter I mean should probably below quarter 1 '23, in terms of sales unit, which by the way was I think, for another 90,000 units. So that would suggest that the fourth quarter, I mean, would be a difficult one. If we look at the ambitions we have, if we look at the cost phasing, I would say the first quarter probably should come in at the lower end of the guidance range for the full year, but still within the range. And given a pretty low number that in terms of sales, that's an indicator of change, I would say. So definitely, we want to restore the margin, starting with a Q1, but then obviously with higher volumes and the quarters to come take it to the level of the guidance range of 10% to 12%.

Ola Kallenius: So, good morning, Tim. With regard to policymaking, supporting or not supporting the EV ramp, it's very, very difficult to make a prediction. You can see that sometimes policymakers make abrupt decisions. Germany casing point on a Friday afternoon, the government decided to cut the incentivization for electric vehicles for the following Monday. Pretty unprecedented. So to have a firm prediction on what's going to happen, there is difficult. I would say this though, as far as Europe is concerned, there is a review coming up in 2026 that is baked into the policy decision of going CO2 Free in 2035. For a big system, like transport and mobility to turn, and literally switch energy source. That is a Herculean task that is a systemic task and industrial task. And many things need to fall into play for that to happen, not just the product. That's the thing that I'm most confident about. Because we're putting our money where our mouth is, and we're investing 10s of billions into very attractive electric vehicles coming up, not just us, the industry as a whole. We're also investing into infrastructure. But what the consumers are not going to accept, is to limit or lessen their convenience in terms of mobility, and certainly not where it's used for business purposes. So if the enabling factors cannot keep step with the ambition, I'm sure a rational discussion would need to be hard to assess, are we progressing on the trajectory that we need to go on? Or are we not? At least as far as Mercedes is concerned, we're doing everything we can to create attractive products, but also to tell our customers we got your back and investing in infrastructure and other things, working with our supply base and so on. So I mentioned in my speech. But I want to be cautious with predictions here. Because it's very difficult to know what the political landscape will look like in a couple of years from now.

Tim Rokossa: Thank you very clear.

Steffen Hoffmann: Thank you, Tim. And we go to London, next question goes to George Galliers from Goldman.

George Galliers: Thank you for taking my questions. I would like to start with a question around the introduction of the MMA platform. In the slide deck, Ola mentioned that it will redefine what customers should expect from an entry point product from Mercedes, which if the case should hopefully manifest itself in higher price points. With this in mind, and obviously not withstanding the economic challenges around X EVs, what do you see as the implications for price mix within Mercedes, from the introduction of the MMA platform, and the phase out of some of today's entry luxury products? The second question I had was around the free cash flow, which I think takes on much more significance in light of yesterday's announcement. Over the last four years, you've generated more than 35 billion of industrial free cash flow, so a run rate in excess of 8 billion per annum. And obviously, the guidance of this year implies free cash flow again in excess of 8 billion. Clearly, the future is unpredictable, and you don't have a crystal ball. So, do you think 8 billion is a reasonable kind of a floor to assume for cash flow over the next four years? And hence, should there be potential to generate another 30 billion plus over that timeframe? Thank you.

Ola Kallenius: So George, I'll start with MMA. What we're executing with the MMA platform is what we set out to do. And I think it's really three things that are happening here. On the one hand, we have made a portfolio optimization decision. So we're focusing our portfolio. As you know, from seven models to four models, in this segment, we have selected the four models that we believe will perform the best in from a worldwide market perspective. We're significantly elevating the technological substance of our product in that segment. So the customer compared to the very attractive products that they get today, will get so much more. And we'll have a thoughtful and customer friendly approach towards the refinement of those products within the segment, to make sure that it is a Mercedes experience, through and through. But what we're not going to try to do is to completely leave the segment, because then actually you're doing a C-class and you're not doing a CLA. So whereas this means a migration or a nudging North inside the segment, we want to stay in the segment. And especially as you can see on the BEV development so far across the world, it has been small and medium that has been the growth factors for BEVs. And this would be our play in in the entry side of the medium, if you will then have followed by MB EA, which is just you know, a year behind within the electric GLC and the C class. You got to keep those product positions apart. So stay within the segment, but nudge up in that segment.

Harald Wilhelm: Yes, George on the on the cash flow, I think the share buyback was a capital allocation framework is a statement of confidence and continued cash generation, otherwise probably wouldn't have been wouldn't have made sense to come out with the framework and the policy of continued share buybacks over time, but well, without giving a guarantee on cash generation moving forward. But let's go back to basics what makes the cash flow its margin, right. So, I mean, you have made pretty good indication for the margin in 2024. With the product portfolio now and to come '25 '26, I think we feel very good to defend a marketer position with the substance of the product. I mean, at the pricing level, I mean, we mentioned shortly before in Tim's question, so definitely all in all, with the cost focus, we have the objective mean to protect margin moving forward. Second point on the cash flow obviously is investment side of things. Where we're doing a lot on the investment side, but we have a very, very clear view of the portfolio in which we are investing we have to invest and I mean that number doesn't go through the roof. We set ourselves caps, I reiterated the point on the investment adjustment over time, maybe a bit longer in the second half of the decade, but not going so the solar roof. And on the working capital side, I think you can see that there's good level of discipline to manage working capital. So that in essence working capital mean isn't a drain on cash flow too much. That means cash conversion targets, I do see them in in the range of 0.8 to 1, not only I would say for 2024, but moving forward. For the van side given the step up and the longer life cycle investment on the van at 0.6 to 0.8 for free years mean to come probably mid '26 '27 until in the week, or I mean will hit the market, but then a pretty good potential to come back to higher level conversion ratios. And I think that should frame your thoughts on the size and the stability of cash generation moving forward, which will then fuel obviously, the share buyback potential after EV. But maybe there are some opportunities also. Some might think about M&A, that, at least on my side, I'm not a big fan of large scale M&A. But maybe M&A also consists of not only acquisitions, but to divestitures. And over time, that means we could consider after the lockup period to divest from the Daimler Truck stake. I said when we could and didn't say we do, but we could, obviously that would support the free cash flow and take it even to a higher level on which than the new policy would apply. So, I hope that answers your perspectives on future cash flows.

George Galliers: Very helpful. Thank you.

Steffen Hoffmann: Thanks, George. And we stay in London continue with Daniel Roeska from Bernstein.

Daniel Roeska: Good morning, gentlemen. I'll go back to the ICE and BEV question. Would you expect your market shares in combustion engine and electric vehicles ultimately to approach similar levels, kind of independently of the BEV share in the market, so kind of isolating yourself a bit from that progression? And if your market share than BEV would be lower than an ICE? What conclusions should investors take from that? And then secondly, what does it take to bring some of the product excitement you have around MBVA to the combustion engine side? If you think about combustion engine cars in the 2030s, will you need a new platform, or at least to refresh on the ICE side, kind of what do you need to do kind of to bring MBOS [ph] to some of the design language you have now over back to the combustion engine side? Thanks.

Ola Kallenius: Daniel, good morning. If you look at the development of BEV market shares, as a percentage of the total car market up until this point, it is evident that the highest chair it's kind of coming from below going up and not the other way around. In the segments. Much of which is driven by policymaking in China and the dynamics of the Chinese market, where a lot of small into medium is where the action is. On large, if we take our EQ and EQS right now, actually, we have a pretty good market share. It's just that the market is not that big yet. And that many customers in that segment, they view the S-Class and the sibling cars as kind of the non-plus ultra that they want to have and we don't mind. Now, if we look at the timing of our launches, we start launching next year the CLA and it's 104 as I mentioned before. So over the coming to end about 24-30 months there will be a family of cars there that then becomes the entry point for Mercedes and followed up by which is probably in premium luxury the biggest segment C class and GLC and we will launch those products in 2026. So we come into in terms of meeting the market and the market structure as you can see it today we come into a full swing by the year 2027. So we have not made any plans for any artificial market shares lower or higher on ICE or BEV. We want to exploit in a value over volume approach, as Harald mentioned. The maximum potential for those products. When it comes down to the ICE siblings, I think it's also key here. And I tried to portray that in my presentation just before, that if you walk into a Mercedes showroom, you expect the Mercedes to be a Mercedes to be a Mercedes, and maybe don't think so much about if it's BEV or an ICE. So the technologies that we're developing now on MBOS, next generation driving assistance systems next generation infotainment, and I don't know if you have driven if you have driven the new weeks us and I know I'm ever so slightly biased, but I haven't found a car that has more exciting infotainment offering than that car. I don't think our ICE customers long term would accept if that is like, like, then when the next gen comes to BEV story only, and the E-class is, of course, a combustion based vehicle. So we're going to have to cross breed between the two as we go along. Do we need a complete new architecture as in ripping up the playbook and starting from fresh on the combustion side? No, I don't. And the reason why I don't believe that is twofold. On the one hand, through EU 7, China 7 and the emissions laws in the United States, primarily California, we are updating all of our relevant ICE powertrain combinations for the 2027 timeframe. So it's almost like we will have a whole new fresh lineup in 2027 that can carry us well into the 2030s. And we're also together with our partner developing a brand new entry level four-cylinder engine that will also about nine months or so maybe 12 months or so after the electric vehicle on MMA also be a very competitive, good hybrid powertrain that is literally brand new, then starting whatever '26 and forward. So we got the powertrain lineup, and we have the infrastructure to continue to produce. And our architecture then on the larger vehicles that we call inside the company MRA2, it's literally brand new the E-class sits on that architecture, we believe that we can with the technologies that we're developing, use that to underpin any and every update that we would need to do to those vehicles along the way on that journey into the 2030s. And if we need to do more on the optical side, at the right time, we will do so.

Daniel Roeska: So if you think about the upcoming C class on MBEA, a kind of is the thesis that the MRA2 could support kind of a similar or kind of equivalent combustion engine version, right? Because the MVA C class is distinctive in its own way.

Ola Kallenius: And that is true, as is the combustion portion of the C class and the DLC which is actually our best seller. But stay tuned, Daniel, and you'll see what we have up our sleeve.

Daniel Roeska: All right. Well, thanks.

Steffen Hoffmann: Thanks, Daniel. And we continue with Patrick Hummel from UBS.

Patrick Hummel: Yes, thank you. Good morning, gentlemen. First of all, congratulations to your capital allocation policy decisions. I really think that's, that's benchmark for the industry. My question relates to an update on the medium term plan that you had laid out at the economics of desire CMD. And before already, when it comes to the, you know, investment budget, the fixed costs, et cetera. Correct me if I'm wrong, or if you think I will be wrong, that the volume assumptions you took for core for the core segment, core luxury segment look a little bit ambitious from today's perspective for 2025 perspective. So, can you just first of all, give us an update on how you think about, the three buckets entry core and top end with a medium term view? Now that the reality has deviated probably slightly from the plans laid out back then? And what is the conclusion of maybe the core segment being a little bit smaller than expected a couple of years back when it comes to CapEx, or investments overall, including R&D, and the fixed cost side of the business, if you could just update us on those building blocks because that all feeds into the free cash generation of the business, of course. Thank you.

Ola Kallenius: Yes, thank you for that question, Patrick. Let me start with kind of the composition of the pyramid or the diamond that we showed. We kind of ran up on the top end level to the percentage a little bit quicker than we thought. And you're right that the core side did not grow as fast as talked about two years ago. Although some of that is product and launch related, as we have discussed, so, our two main products, the GLC and the E class in that core segment, well, one is in full launch now, so we're in switch over, that's the E Class. And the other one was indeed, restricted in the second half and into this year, as has been discussed. So I think that in terms of the relative importance inside that segmentation, we're looking at a little bit of a comeback of core. And then we will, as described before, with MMA carefully managed the entry side. So I think the composition of the pyramid or of the diamond is, is pretty solid. And we're following what we had said. But then you look at the macro environment in the market, and I think you have to ride the market. And we have in as disciplined a way as possible, always tried to find the right equilibrium between pricing protecting value protecting residual values for our customers, as well as volume. And coming out of this restricted era there with the semiconductors and everything. The macroeconomic and the market conditions are different now than perhaps some people had thought. So you also have to ride the macro market. And that is where we just tried to adjust volume to what the market supports. So maybe in absolute numbers were a little bit behind, but in the composition, I think we are doing reasonably well.

Harald Wilhelm: And EBITDA guiding it at the top end was at 16%. We said we want to get there over time. And actually we are there 2022 2023. Does bear in mind as well, that mean the top end obviously has a few of the best as well, which are developing a bit of slower pace compared to the expectation maybe at that point, in fact, at the point in time, in spring 2022. On your question, what is mean for fixed costs and investments? Patrick? While the fixed costs are the fixed cost, we’d say almost no, no matter what happens around, so we don't see that as a percentage of revenue. No, it's an absolute number we're driving year on year down with a 16% down by 2023. I mean, you can see that. So we're not that far off, I would say of the 20%, which we ambition for 2025. So on track to deliver that. And we're not stopping that in 2025. Definitely, we have the ambition mean to keep going with each and every efficiency possible in each and every department. On the investment side, compared to what we said at the point in time, 20% down compared to 2019 by the mid of the decade. We added definitely portfolio positions AMG, EA portfolio on MVA and MBOs. So I think that is running at a higher level. And you see exactly in at the same time, the increase of the best share doesn't, doesn't go maybe exactly in line with the previous predictions, if we stick to the investments on this side. They are very important that we have a very precise view of the portfolio what needs to be done. And that fits in the entire envelope. And I mentioned before in inroads question. But with the 20% of the cash of the investments down, sitting more in the second half of the decade, as Ola said before, when we need to use tactical flexibility, I mean on the ICE side, but the best investment profile for us is pretty clear. And we see definitely mean the potential for the investments I mean, to come down over time. So confirmed, not for 2025 but for the second half of the decade.

Patrick Hummel: Thank you, both.

Steffen Hoffmann: Thanks, Patrick. And next gentleman in line is Jose Asumendi from J.P. Morgan.

Jose Asumendi: Thank you very much. Good morning and congratulations on the capital allocation program. Two questions please. Can you discuss in regards to your -- to the guidance on the auto margin for 2024? What are the planning assumptions in the Chinese market when it comes to volume and earnings contribution from the region? And second, Ola, can you talk a little bit about the plan to hit the CO2 emission targets in Europe? And can you maybe comment around the share of debt that you're planning in 2024 and 2025? Thank you.

Ola Kallenius: Yes, thanks, Jose. So overall, I mean, as we said, before, we take a prudent view on sales in 2024, supply constraints are still being there, in particular mean in the H1 and the Q1 as I emphasized in the first question, that has an impact but mean beyond that, we also take a prudent view given the macro environment. And obviously I mean in the very heated best competition in China, where we participate, but not by all means. And therefore I would say all-in-all, for China was in the sales flat guidance. China is also rather flattish mean, in there such as your obvious and maybe a bit of upside potential from the U.S. and maybe flat or slightly down and remain of the world. So I think that is how the sales guidance is composed. With regard to CO2 guidance for Europe, you can see the chart and the presentation. So the backbone of it is obviously the xEV share, we will continue to build the xEV share. We're now changing smart, so smart use to sit inside Mercedes, obviously from a legal entity point of view. Now that is entered into the pot via the joint venture that we formed some years ago. So you have a method change there. As I described before, we launched the CLA in 2025 and really get the kind of the bulk of the vehicles in 2026 and 2027. So if I look at that mid turn run up of the xEV share that looks healthy in the crossover year 2025 and into 2026. I'm sure we'll look carefully at that and it will be underpinned by xEV share, should we have to use other options above that? We will keep an open mind. But it is growth of xEV shared that ultimately solves that issue.

Steffen Hoffmann: Thank you, Jose, and we continue with Stephen Reitman from Societe Generale (OTC:SCGLY). Stephen, can you hear us?

Stephen Reitman: I can hear you, yes. Thank you. I have three questions, please. You've highlighted logistics has been one of the headwinds you've had in 2023, which I think is a seen generally across the industry. But we are not seeing logistics costs falling quite dramatically, particularly in some shipping. How do you see that in terms of influencing your reach in 2024? Could you also comment on your first thoughts now on AC model? Now we've had here a bit in the UK and half year in Germany doing to transaction prices. And thirdly, you showed us obviously the sneak preview of the facelift of the EQS, which is obviously said as much more than a facelift is a very substantial refresh of the vehicle styling of the vehicle is that which is more -- which seems to suggest a more traditional approach on the front end. Is that a -- is that an option? Or is that the way that all the vehicles will look? And also could you give us some idea on timing of the customer deliveries of that vehicle? Thank you.

Ola Kallenius: Yes, Stephen to your first question in terms of the headwinds, yes, I mean previous years, logistic costs I mean definitely a headwind in the course of 2023. You can see overall logistic costs have been turning and came the other way. And next to the cost per unit on the logistics, I mean, we're obviously trying as well, I mean, to challenge and improve the overall demand side of the logistics side, or in particular, if you think about outbound. At this stage as we speak, however, I mean, some of the geopolitical constraints like Red Sea may get fed, obviously, ships are going a bit for longer, longer means more expensive. So temporarily, maybe a bit of a headwind, but globally, we're trying to take opportunities also from -- I mean on logistics, in 2024. On the Model D and the benefit on transaction pricing. Well, in the meantime, quite a lot of markets, which we switched, right in sorting was Sweden, South Africa, Australia, Austria, and now 2023 obviously, UK and Germany. And if we look into each and every of these markets, what we can observe is when we compare basically the pricing, the discounting in the situation before compared to thereafter, there is a net pricing benefit, that varies quite a lot in the individual market. So I mean, therefore, I mean, this is not very meaningful, to give any number here. But obviously, it helped the pricing performance, which again, was significantly positive in 2023, as you can see in the margin bridge on cars. And by there's very same thing on the van side, which is also for men supporting in the pricing. And for what is yet to come, I mean, we do expect the same thing. Obviously Inter-brand competition in goes away, transparency. And all in all, we therefore see that as a favorable support to the pricing strategy. With regard to the model year update on the EQS, not just the star on the hood, and that more traditional Mercedes like panel in the front, but the executive seating, the new battery chemistry, some of the other measures that we have taken to improve efficiency and approved range that will be available in the market as of June. Actually, we're sneaking in the battery. We're actually making the battery update before that. But as a complete package, it's available in the market in June. Starting in Europe, obviously, and then you have some shipping times. And if I look at the feedback that we receive from our customers from the EQS, and the EQE around the world, it is some of the highest customer satisfaction scores we have anywhere actually, a little over a year ago, when JD (NASDAQ:JD) Power did a study in China. Actually, we scored the highest of any brand any vehicle. So the people that drive these vehicles, they love it. Some of them want to keep more sporty look and have the star integrated in the panel. And some, we believe will want to have the more traditional look. So you will be able to get both. If you sit in the back, you can still order the regular backseat. But this executive seating is then also available of June. I'm 195 tall, I sit in the back of an EQS, I can sit there very comfortably.

Steffen Hoffmann: Thanks, Stephen. And we continue with Horst Schneider from Bank of America.

Horst Schneider: Yes, good morning. Can you hear me?

Steffen Hoffmann: Loud and clear.

Horst Schneider: Okay, excellent. First question again on pricing. Because it seems to me that surprisingly, pricing has got stronger in Q4 even versus Q3. So, Harald can you maybe explain what has driven that and risk assumption for 2024 that you aim prices to hold up? Can you provide a little bit color by region by segment because I think not everything is up or stable, something will be down something will be up to drivers? And that's basically stable pricing means and value over volume means do you rather focus from here, really not any more on market share so that you typically should expect basically market share losses, also beyond 2024. And the last one is on Ola. Regarding best price policy, we see in the mass market at the moment that basically best prices get down to level, where also the ICE prices are. I think that is not yet the case in the premium market for this your working assumption basically, on pricing going forward on best when you expect best prices to go down to ICE level also in the premium market, or you expect it at all ever to happen? Thank you.

Harald Wilhelm: Yes, thanks, Horst. So, first one on pricing. No, I think we've said in the presentation earlier today. Full year pricing was healthy was solid. I think in previous quarters, we gave some color on what is the pricing in itself, I mean, in the bucket. I think we reach a bit of the limits is I see what other people are doing, I'm happy to commend on a qualitative basis. And that means in the fourth quarter pricing, quarter over quarter four '23 over quarter four '22 was still positive. But I would not say that I mean, quarter four, in terms of pricing was sitting above a quarter suite 2023. But full year and year over year, even fourth quarter was very supportive, as you can see in the margin bridge. Looking into 2024 may not we said we have the target we had the ambition to keep pricing stable, stable and obviously means flattish. Now do we think we can get there? I mean, number one, as you know, pricing is composed of several elements, discount management, base pricing and escalation. So we'll work on all levers we’ll keep flexibility, obviously on discounting, to stay competitive in the market, but not to the extent that we want to buy market that we want to buy share, as some others might do. That is not our policy, again, value over volume applies. We think market share should be defended by product substance and not necessarily by aggressive pricing measures and actions as probably the latter one are not sustainable, whereas the products of since is sustainable.

Horst Schneider: But Harald that means that you your guidance also a range included right, so upper end of the range could be like flat and the lower end of the range would mean negative pricing, is that correct?

Harald Wilhelm: Well within the guidance, you have many building blocks. So, pricing is one obviously, I mean the material cost is one, logistics we talked about before. So many things we look at. And then we take a judge to you as and then obviously we build from there. I mean, the guidance range, and as I said before, it's 10 to 12, which means Q4 is not the proxy for 2024. With regard to the with regard to the BEV pricing policy going forward, if you look at those M&A, and MBEA vehicle, and so on going forward, we think first of all, that we're putting attractive and competitive vehicles into the market. So of course, we want to exploit that. If you then look at what should be the premium on a like for like, from combustion to a BEV, and it is true, and I mentioned it is my speech that the variable cost of the like for like electric vehicle is higher than the than the ICE. So in those business cases, we're assuming a, a moderate price differential where I don't think we're going to be too aggressive or too optimistic. But we do assume that we can have a price differential going forward. And from a total cost of ownership point of view for the customer, mind you, that for them over time, the cost of energy fueling up with electricity, I suppose to gasoline or diesel, and so on and so forth. And depending on which market, you're in taxation, et cetera. You know, some of that comes back. So the total cost of ownership differential might be much smaller, and in some cases, it might be the same.

Horst Schneider: Okay, that's great. Thank you.

Steffen Hoffmann: Thanks, Horst. And we continue with Michael Raab from Kepler.

Michael Raab: Yes, hi. Mike Raab from Kepler Cheuvreux. When you just said that you want to keep flexibility in your discount management, I guess the key question is, where's the fine line to walk on the line of discrimination beyond which you're compromising your value over volume strategy? I guess what I'm out for is to what extent are you willing to ratchet up discounts here? And then secondly, when it comes to BEV pricing or the general competitive framework for BEVs? Are you still happy with your residual values? Or have you already seen impact on the EVs so far? Thank you.

Harald Wilhelm: Thanks, Mike. Just on the second question for sure. When we look at the residuals and any exposure, and obviously, not only us, but our external auditors, and this is being done at each and every quarterly close at any charge, which would need to be taken, what's written in the books. And obviously, we've been going through the procedures even if the audit is not ultimately completed. But I have no indication I mean, that would be a change to that. And there is not any material adjustment in the books and records for EVs in the 2023 numbers, which we published. On flex discounting, I think it's, it's a bit difficult to give a general statement, you need to look at, obviously, the individual product segments, you need to look at the individual markets and the timing of the products I mean, in the market, the life cycles. Obviously, you're looking at what is the margin contribution of the individual ones. And this is I think, I mean tactical day by day job, I mean the sales team in close cooperation, obviously, with a few finance guys looking over the shoulder. And the end result, you see basically then in the quarterly bridges, I mean, again, where we give I think a lot of details in terms of in the bucket volume mix and pricing. But the three levers I think, are important to be seen in conjunction, product based pricing, which is going to the product substance escalation updates, year-on-year and discounting and again on discounting is probably mean the flex tool in a competitive market environment.

Michael Raab: All right, thank you.

Steffen Hoffmann: Thank you, Michael. And we continue with Mike Tyndall from HSBC.

Mike Tyndall: Good morning, gents. Thanks for taking my questions. Just a couple if I may. Just thinking about the slight change to strategy in terms of xEVs, versus previous ambition. And just in 2023, it felt as if there was a penalty from your supplier side, because you didn't quite achieve the level of volumes that you were aiming for. So I'm wondering to what degree you've got a flexibility with your suppliers. If it turns out that their penetration is lower than you previously thought, has that changed at all, such that perhaps what happened in '23 won't happen again? And then the second question is on capitalization. I just wonder if you can talk a little bit what's inside that. Curious to know whether or not MBOS is inside that? And does, if it is, does the rising capitalization sort of suggests that you are getting closer to the point of saying we're ready to go on that. Thanks.

Harald Wilhelm: Yes, thanks, Mike. So first point I mean, we're not commenting on individual contractual relations with the suppliers, that when we talk about supply chain related charges, inflation related and capacity adjustment related charges in 2023, a lower EV adoption rate, I mean, place somehow a role in it. I think that is fair to say. And I'm pretty sure that applies not only to us, but to other market participants as well. However, I mean, in the discussions, I think I mean, can go as far as saying that one, we take at our end, I mean a longer term view in terms of the supply relationship and that doesn't go for 12 months, that goes for the product lifecycle, that goes for multiple products, that goes over many, many years. And so we want to have constructive relationship and discussion with the suppliers. Which means, if there are charges to be considered, we are ready to do so. If we feel that goes beyond and other elements are sneaked in will push back hard and we'll consider in the overall relationship with suppliers with respective consequences, I mean over time. On the second question capitalization rate. Yes, went up in the fourth quarter, outcomes, several elements. Yes, absolutely we are approaching maturity in U.S. So, Ola said earlier, however, not a walk in the park and still a lot of things which need to be done. But as vehicles are on the street are being tested features are coming up, I think that is encouraging progress. What else is in there? I mean, a lot of products in the pipeline, MMA obviously, MBEA AMG EA. So lots of stuff. And another newcomer to another, I mean kid in town, on the capitalization is the electric G class. Well I mean, as per the IFRS rules, you don't have the choice, you have to capitalize. If you have a product which is supposed to generate value, or you earn more than your cost of capital and with all of this stuff, this is very much the case. So, in this respect, I have to say capitalization in 2023 and in the fourth quarter, has not been a function of helping the EBIT. It is a function of value creation ahead for the future. And probably will stay at an elevated level. And also in 2024 around that level, as we headed in 2023.

Mike Tyndall: Got it. Thank you very much.

Steffen Hoffmann: Thanks, Mike. And we continue with Henning, Henning Cosman from Barclays.

Henning Cosman: Yes, good morning. Thank you for taking the question. I have a slightly longer one and the shorter one. The longer one is around the volume dynamic. So you're guiding flat volumes, you said you missed about 100,000 units last year, I appreciate it's not all coming back immediately. You're looking more for the second half. But if you would take out the 100, it almost implies you you're guiding down 50 to 100. Everything else equal. So I just wanted to understand that, why you wouldn't expect that to fully come back? And then related to that, from an EBIT perspective, not to go over all the individual again, but I guess, you know, in my estimate may be missing out a $1.5 on EBIT or so because of 100,000 units… [Technical difficulty]. If you could just comment on how you see the structure margin potential. Here you said 10% for this year, would you then in the context of the ongoing, but also say 10% to 12% is not a proxy for going forward? So that's the first question.

Steffen Hoffmann: Henning, we're about to lose, we are about to lose us. So, if you have any chance to get closer to a window or so it would be helpful. We almost cannot hear you.

Henning Cosman: Is that better now? Steffen, can you hear now?

Steffen Hoffmann: Yes.

Henning Cosman: Yes. Sorry about that. So the second much shorter one was just on the dividend. Thanks for saying there's upside potential given the buyback. Would you be prepared to say it's fair to assume in absolute terms, stable or rising dividend from here, even if it would mean exceeding a 40% payout ratio?

Harald Wilhelm: Yes, so thanks for joining. Let me try to cover in the multiple questions within the question number one. Well, I don't think you can take the approximately 100,000 units which we lost, so to say in 2023, and when they land on top in 2024, is probably you cannot demonstrate that the customers have been saying, okay, thank you. I wait another eight or nine or 12 months and by the way, I don't know for how long I have to wait. And therefore you nail them on top in 2024. I think that's not the way it works. So probably you need to assume that the lion's share of the 100,000 I mean you lost and one will not recoup in 2024. And therefore, I think you heard when we said I mean, we take a broader view on 2024. It's still constrained by supply in the first half. I think everything has been said in this regard, I would say, I'm totally sure on your margin question. And the margin associated obviously to the 100,000 100, approximately 100,000 units is a pretty substantial amount, but I've stay away from commenting how much of the main that is. On the EV margin, I am not exactly sure, as I mean the line was cut out a bit. But in terms of the quality of the EV margin, what can we say at this juncture. I mean definitely, it's sitting below the ICE. We also had to take adjustments, it's started somehow in fall 2022, with some repositioning in China. We took some further action in 2023, to stay in the ballpark, to stay in -- to stay competitive. But we're definitely not going as far as other competitors in terms of trying to push the EV products into the market by all means. So in other words, I would say we defined them in the line in the sand, the boundaries, which obviously fit into the objectives, the overall financial objectives 12% to 14%, we said for 2023, we made 12.4%. And that is the same now what we baked into for 2024. And maybe I go as far as saying that the margin contribution of the EVs is positive. And you just think about contribution margin not EBIT margin, but contribution margin i.e. margin per unit. I can say that this is double digit. On the dv question, I'm not making projections on the future dividends as such. But as you can see, with the dv proposal of five year or 30, the share buyback accretion offers DPS upside potential of approximately 2%, if you compare to the five year or 20 at ISO net profit. And now completing the remaining 2 billion in '24, adding the 3 billion until toward 2025. That should suggest I mean, a further accretion potential on EPS and also on DPS assuming, if you depart from the same level. Obviously I mean with a guidance, you need to factor in probably a bit of a lower EPS and DPS as well. But therefore, the share buyback definitely serves as a stabilizing and upside potential for EPS and DPS.

Henning Cosman: Thank you, Harald. Sorry for bad line.

Steffen Hoffmann: Thank you, Henning. And the last question goes to Harald Hendrikse from Citigroup.

Harald Hendrikse: Thank you so much for taking my question. Again, congratulations, I'm very happy you've done this on the cash side, not least because it obviously competes with some other investments and stuff that we've looked at historically. Just one really quick question. I'll keep it to just one. Can you just talk a little bit more about China, Porsche has been very vocal about top end in China, yourselves? You know, the Chinese market clearly has been more difficult. So can we talk about you know, overall China demand how you see that developing? It feels like, German market share is definitely under pressure now, even with your brands. And then secondly, given tariffs and stuff may come up again this year. What are we thinking about China as a production base, if we do have spare capacity? I think we're looking to make EVs for the global market from China. Is that viable? And how are you looking at in terms of future investments and stuff? Thank you very much.

Ola Kallenius: Yes, thank you, Harald. As you could see, in 2023, we had a solid year in China, in spite of the fact that the Chinese market did not develop the dynamics that many people had hoped, post the pandemic. And we take a prudent view, Harald alluded to it before for 2024. So we're not going to put over optimism into China. But we are launching now the new E class, which is, one of the core models, and it's industrialized in China. So that will once we’re ramped that volume, I would say latest by Q2 will give us some momentum. So China as is the case with its economy. It's more going sideways than it's going upwards, there is high level of competitive intensity in the EV market, much of which is, of course below the segments that were generally represented in. And we're try to stay as disciplined as possible not to be sucked into to those dynamics, and then might flex with volumes instead. With regard to potential protectionism and the discussion that is going on between the EU and China, I think we have stated our position very, very clearly. Any move by the EU or other party to race protectionism is a value destruction move, especially for an economic region, like Europe and Germany that is a big exporter. So we're participating in that study, and making our opinion very, very clear.

Harald Hendrikse: Okay, thank you very much. Thank you.

Steffen Hoffmann: Thanks, Harald. And with that, ladies and gentlemen, thank you very much for your question for being with us today. Thanks a lot to Ola and Harald for answering the questions. As always, IR remains at your disposal. And before I close today's call, I'd like to remind you of our upcoming Mercedes Benz ESG Conference, which will take place virtually on March 20. There we’ll provide you an update on the progress and the achievements in the relevant fields of E, S, and G. Stay tuned. And now to all of you have a great morning, great afternoon or great evening. Thank you and goodbye.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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