Despite improvement in demand, Daimler set to cut costs further

Frankfurt — Daimler CEO Ola Kallenius will widen cost cuts to shore up returns, even as the German manufacturer signalled that demand for cars and trucks started to recover from the most dramatic slump in decades.

Mercedes-Benz car deliveries in China climbed to a record in the second quarter, truck orders are picking up, and global retail sales in June rose compared to the prior year, Daimler said on Wednesday at its AGM. Still, the company will lose money in the second quarter after the coronavirus jolted markets, and it has therefore started to implement “thousands” of efficiency measures, Kallenius said.

“Our previous efficiency goals covered the upcoming transformation, but not a global recession,” Kallenius said according to a prepared speech text. “Daimler can do better, and we are determined to deliver.”

Kallenius, who took over Daimler’s top job in May 2019, has warned that the global vehicle industry faces a fundamental transformation to overcome the economic fallout from the pandemic and navigate a seismic shift towards electric vehicles. While Daimler, Volkswagen and BMW have been hit hard by the virus outbreak, electric-car leader Tesla shrugged off the slump to become the world’s most valuable vehicle maker earlier in July.

Daimler will offer five electric models and more than 20 plug-in hybrids by the end of 2020, Kallenius said. Talks with labour representatives over cost-cutting measures needed to finance investments were “constructive”, he said.

Kallenius faced critical questions at his first shareholder meeting since taking over the German carmaker. A string of profit warnings — several of which predated Covid-19 — have exposed misguided investments and the vulnerability of Daimler’s business, Deka Investment said ahead of the gathering.

“We look back at a lost year for Daimler,” Ingo Speich, Deka’s head of sustainability and corporate governance, said in prepared remarks. While Speich supports Kallenius’s cost-cutting and focus on cash generation, he said the CEO carries some responsibility for Daimler’s woes because he served as development chief under his predecessor, Dieter Zetsche.

‘Boring’ EQC

Daimler is hoping for a sustained rebound in China, where premium brands such as Mercedes-Benz and BMW have emerged from the slump quicker, helped by demand from wealthier consumers.

But the exact shape of the recovery there remains unclear. Car sales in China retreated in June following a rare increase the previous month, signalling that the world’s biggest vehicle market was facing a bumpy recovery from a two-year slump worsened by the pandemic.

Daimler shares have fallen 24% in 2020, giving the Stuttgart-based manufacturer a market capitalisation of about €40bn, less than a fifth of Tesla’s valuation.

Tesla sells about 10 times as many electric cars as Daimler, and the German company’s Mercedes-Benz EQC model, released in 2019, is “too late, too expensive and too boring,” Speich said.

Deka holds about 5.4-million Daimler shares, roughly a 0.5% stake, according to data compiled by Bloomberg. Daimler’s largest investor is Chinese billionaire Li Shufu with a 9.7% holding, followed by the emirate of Kuwait with 6.8% and the vehicle maker’s joint-venture partner in China, BAIC Motor Group, at 5%.

Daimler completed a corporate overhaul in 2019 to give its cars, trucks and mobility-services operations more independence, but management has yet to explain how they intend to earn back the related expenses. Investors have been urging Daimler for years to consider a separate listing of the trucks division, but those calls haven’t resonated within the executive ranks yet.

Daimler’s latest restructuring plan, which Kallenius unveiled in November, foresees cutting the company’s workforce by more than 10,000 to save €1.4bn in personnel spending by 2022.

Bloomberg