Daimler Trucks Widens Cost Cuts as Market Downturn Looms

(Bloomberg) --

Daimler AG’s truck division plans to make additional cost cuts to counter weakening global demand and the financial burden of investments in new technologies like electric and self-driving vehicles.

• “We want to and will permanently cut our costs. This is why we intensified our efficiency measures,” Daimler truck chief Martin Daum said Tuesday in Stuttgart, Germany. He’s targeting around 550 million euros ($596 million) in savings in Europe by the end of 2022. Separate measures are planned in markets including Brazil, he said.

Key Insights

• The world’s largest maker of commercial vehicles is set to spend 1.7 billion euros annually this year and next in future technologies, including widening tests with self-driving trucks on public roads in the U.S. together with Torc Robotics.
• The truck division’s Ebit fell 11% to 2.46 billion euros last year as sales declined 6% to 488,500 vehicles, mainly due to waning demand in Europe and Asia. The operating profit margin shrunk to 6.1% from 7.2% in the previous year.
• Daum is bracing for another contraction in profitability in 2020 to 5%, excluding potential “material adjustments” related to legal proceedings or restructuring. The goal for 2022 is a margin of at least 7% if market conditions remain stable.

Market Reaction

• Daimler shares fell 2.2% to 42.72 euros, valuing the company at about 46 billion euros -- almost two-thirds lower than Tesla’s market capitalization.

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• Volkswagen AG stepped up its challenge in the critical North American market with a takeover offer for Navistar Inc. Daimler generates a large chunk of truck profits at its Freightliner division in the U.S.
• Alongside traditional rivals like Volvo AB and VW’s Traton SE, Daimler faces potential competition from Tesla Inc. and Nikola Motor Co. in electric trucks. Daum said the main competitive pressure comes from customer demands rather than new emerging rivals.
• To read more on Daimler group’s broader cost-cutting and investment plans, click here.

To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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