Daimler AG
DDAIF – US OTC
Olivier Fontenelle
10/30/2013
Main Business Lines
Key future success drivers
• Significant product launches
• Recent revenue and profit growth
• New China strategy
• Positive macro environment
• “Turnaround story”
Recent Results
• September sales were all time highs: 142,994 vehicles WW
•
Driven by sales of E-Class, A-Class and CLA-Class
• 5% YoY increase in Q3 revenues
• 53% YoY rise in Q3 profits
New Products
GLA
CLA
S Class
C Class
Small
crossover
Driving
US
sales
30,000 in
3
months
All
new
model
Automotive industry is highly cyclical, the development
schedule drives sales. MB is in the middle of a huge product
refresh, with highly competitive vehicles.
CLA and GLA
• Both based on new small compact platform, shared with
A and B class. 90% YoY WW increase for the class.
• CLA - $29,900 starting price, the first car >30k for MB.
•
Audi A3 was pricing reactionary, matching CLA.
• GLA – small crossover to take on high volume market
•
Competing with BMW X1, Audi Q3, Range Rover Evoque
• “Gen Y – appeal”
S-Class
• Top of the line model, highest profit margins
• Extremely positive industry reviews
• 30,000 sales in 3 months! 2012 sales of “only” 65,000 cars.
• Expected to be #1 in class by a wide margin.
Problems in China…
“Mercedes-Benz has struggled in China since the start of 2012, when
overall demand for luxury cars began weakening amid an economic
slowdown in the world's second-largest economy that affected luxury
car brands in general.
Mercedes fared worse than most because of a dearth of new or
redesigned models and what industry insiders and key operators of
Mercedes-Benz dealers described as a short-sighted volume grab that
hit the brand's profitability.
Mercedes-Benz's sales rose just 4 percent to 206,150 cars, last year. By
contrast, sales of Audi cars rose 32 percent to 407,738 cars, while BMW's
volume increased 41 percent to 313,638 cars.”
New China Strategy
• Goal: Boost sales to 300,000/annually by 2015
How?
• $2+ billion investment in China-based manufacturing:
•
•
•
70% cars sold in China to be made in China by 2015. (cost reduction)
Includes GLA
By comparison, Audi builds 90% cars it sells in China, in China.
• 12% equity investment in BAIC -> planned IPO
• Doubling dealer network from 100 to 200.
Integrated Sales Strategy
The macro-environment
• European economy is rebounding, and care sales are
following.
• “The situation is clearly improving,” Carlos Da Silva, a
Paris-based analyst with IHS Automotive, said in an email. “Europe is not in brilliant shape, yet the underlying
trend of the market is calling for a certain dose of
optimism.”
• “Investor confidence in Germany, Europe's biggest
economy and largest car market, rose to a three-year
high this month. Consumer confidence in the UK, which
ranks second in the region's car sales, was at a six-year
high in September.”
Chinese Market >10% Growth YoY
MB International Exposure
Strong growth in UK (+28%), Turkey (+31%), Russia (+20%), China (+26%)
Still #1 in Germany with 9% market share. #1 in Japan (+32%)
Why not other automakers?
Mercedes is coming back from the bottom. They:
-
Had declining sales
Had the lowest profit margins of the major luxury brands.
Lost the ultra-luxury war (RIP Maybach).
Declining quality perception.
Missed the boat on China, especially to Audi.
Not been #1 since 1999
-
Currently beating BMW by ~2500 cars in the US. #3 Lexus by 25,000
Important Indicators
Q3 Sales
MB Cars: up 14%, Trucks: up 4%, Vans: up 17%, Buses: 17%
Profit Margins:
• Q1 2013 Profit Margin: 3.4% (one time costs included)
• Q2 2013 Profit Margin: 6.6%
• Q3 2013 Profit Margin: 7.3%
Long-term target: 9-10%
Audi/BMW ~ 10%+
EBIT
YoY growth of 15%
Momentum Trade
Financial Indicators and Proposal
TTM P/E: 10.16
Forward P/E: 14.76
PEG: 10.58
Proposal:
~$3000 or 37 shares
*OTC Trade poses little/no risk thanks to the high liquidity
of DDAIF
Risks
• China is very competitive. They could flounder their new
strategy and not catch up with Audi and BMW.
• Global macroeconomy is still not stable, especially in
Europe. China poses macroeconomic risk.
• New entry-level products could erode short term profit
margins more than expected, and will not be offset by
sales volume.
• Truck demand could decrease due to weak heavy industry
demand. India is down >10% YoY, and Russia is missing
forecasts in this business unit.
#1 reason… dat mustache