The European auto landscape has been hit with a flurry of profit warnings of late, leading equities analysts to moderate their outlook on the sector in the year ahead.
On a one-two punch for Germany’s car manufacturers, Mercedes last week warned of lower sales ahead, barely a week after BMW delivered a similarly cautious warning.
Both groups cited weak Chinese demand as a primary headwind.
Although a Mercedes profit warning was widely anticipated, the “timing and particularly the magnitude” of the cut to guidance was “rather surprising”, said Deutsche Bank analysts.
Alongside the 20% cut to expected sales, analysts expressed concern over Mercedes’ downwardly revised car margins of just 6% for the second half of the financial year.
This is below even the more conservative of Deutsche’s guidance which was for margins of between 8% and 10%.
In delivering the profit warning last Thursday, Mercedes boss Ola Kaellenius said "there is a tremendous amount of cautiousness, I'm trying to say this diplomatically”.
Chief finance officer Harald Wilhelm added: "Needless to say that we're not satisfied with the situation and we'll review a comprehensive set of measures, how we step up the contribution margin quality.”
The market heeded these warnings and sent Mercedes shares down 8% on the day.
Now as a result of this dour outlook, Deutsche Bank has cut its price target from €125 per share to €105 per share.
Though with shares currently trading at two-year lows of €54.78, this still represents a buy rating on Mercedes stock.