Is the Future of Mobility a loss leader? Daimler’s Q4 results could tell this story

Yesterday Daimler released its Q4 results, showing a 22% decline in operating profits. Parts of the decline can be accounted for by global trade wars (that have disadvantaged the company in core markets like the US) and the ever-rising costs of developing electric and self-driving cars. But is the story that straightforward?

The company’s Twitter page boldly says the company invented the car, motorcycle, and truck and is now defining the future of mobility. That future will be fueled by different core needs for Daimler’s target markets as young urbanites move away from car ownership. Luxury taxes, rising trade costs, and gas prices could be enough to drive consumers toward electric and self-driving vehicles — but will enough consumers want cars to bridge the profit gap?

Even with raging trade wars, car sales were up 4%. The number cut can likely be attributed to changes in demand that weakened pricing. For those who bought, this might be considered a pricing win.

The company does, however, urgently need to revenue to support climbing R&D costs in advance of launching an electric sports vehicle. We’ll be watching the launch of that product to see how and where Daimler has succeeded or struggled with bringing electric car innovation to market.

In 2019, the first all-electric SUV from Mercedes-Benz is to be launched: the EQC. By the year 2022, the product portfolio is to include more than 130 electrified variants. This isn’t just pure electric but plug-in hybrids and models with 48-volt technology.

Even with all the spending, it’s very possible the consumers won’t be the core market for either electric or self-driving vehicles. The application of self-driving technology to commercial trucking and ride-sharing (robo-taxis) will be significant and could shift the company’s revenue growth toward more commercial applications. Regardless of who rolls it out first, Daimler has been moving in the right direction with car-sharing for quite some time.

Mercedes-Benz remains the top-selling consumer luxury brand. Daimler should have ample time to overcome the current trade instabilities and for consumers to shift more demand toward both electric and self-driving cars.

To keep things in perspective, a 22% decline in operating profits is huge. However, Daimler sold more cars than ever and made good money doing it. They then put 7 Billion Euro into eCars and batteries.

Even though investing in the future feels like a loss leader the Daimler may have learned from the tech sector:

Big shifts take time, and in the turbulent global trade context, we hope Daimler gets back some of that 22% in future quarters. For consumers, we’re watching for business model innovations (outside of punitive tradewars) that make car ownership more desirable and sustainable – both environmentally and financially.

Disclosure:
Sascha Pallenberg, Co-Founded Mobile Geeks, and now works for Daimler. This story was reported using publicly available documentation and Sascha was not contacted for info or comment.

Source Reuters UK