Mercedes Benz Group AG’s luxury strategy is worth keeping an eye on in spite of the carmaker reporting weaker sales in the third quarter of the year, Citigroup analysts say.
Though top-end sales were down 11% over the three months to September, alongside a 4% fall in overall passenger vehicles, Citi reiterated backing for Mercedes’ luxury push.
“We remain convinced this is right in maximising the value of the brand, avoiding costly over-production, reducing competition intensity, and reducing battery electric vehicle transition risks,” the bank said in a note.
Citi did indeed note that Mercedes had pointed to bottlenecks in the production of its AMG model cars.
“The question remains, after very strong top-end sales in 2021 and 2022, and average selling price rising [...] how much of this was strategy vs more cyclical underlying factors?” the bank added.
Mercedes has done well in growing battery electric sales, analysts continued, with these representing 12% of group sales overall.
However, a view will need to be taken on electric vehicle penetration against profitability by the carmaker’s management, they warned.
Such questions prompted the bank to repeat a ‘neutral’ rating on Mercedes’ shares, which they forecast to rise by 2.8% to €67 over the year.
“We think Mercedes’ luxury strategy is a key equity story differentiator relative to BMW and other European peers, and makes an interesting comparison with Porsche’s luxury valuation multiples,” the bank added.
Mercedes will provide further details on third-quarter trading on 26 October.