Daimler increases its profit prospects and sees potential sales losses in the second quarter due to a shortage of chips

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© Reuters. Shanghai Auto Show in Shanghai

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By Nick Carey

LONDON (Reuters) Mercedes-Benz automaker Daimler The AG (DE 🙂 raised its profit outlook for 2021 on Friday, but said the global shortage of semiconductor chips could continue to hurt sales in the second quarter.

Daimler (OTC 🙂 assumed that chip availability would recover somewhat in the second half of the year, but visibility is currently limited.

CFO Harald Wilhelm said underlying demand for cars was strong, but the lack of chips had prevented sales from reaching their full potential.

Wilhelm said on a conference call with analysts that the lost production would only be partially restored by the end of 2021 and the automaker would continue to provide more chips for high-end products as long as the shortage persists.

Cars are increasingly dependent on chips, from computer management of engines to improve fuel economy to driver assistance functions such as emergency braking.

The chip shortage has forced a number of automakers to cut production, including General Motors Co (NYSE :), Stellantis, Ford Motor (NYSE 🙂 Co, and Daimler’s German rival Volkswagen AG (OTC :).

At the beginning of this week, Daimler cut working hours for up to 18,500 employees and announced that it would temporarily stop production in two plants in Germany due to the lack of chips.

However, the German automaker continues to expect a significant operating profit this year, well above 2020, as the global economy recovers from the coronavirus pandemic.

Daimler now expects an adjusted margin of between 10% and 12% for the Mercedes car and van business compared to the previous outlook of between 8% and 10%.

The company also raised its outlook for China, forecasting more than 7.5% growth in 2021, compared to its previous estimate of 2% to 7.5%.

CFO Wilhelm told analysts that second quarter sales in China have been “just great” so far and the company could probably do more if the shortage of chips hadn’t restricted production.

Last week, Daimler said that rising Chinese demand for Mercedes-Benz luxury cars and higher prices resulted in better-than-expected profit in the first quarter.

In China, Mercedes-Benz sales rose by 60% in the first quarter. Wealthier Chinese consumers unable to travel abroad have used their disposable income to buy luxury goods.

Rival BMW this week also said first quarter earnings rebounded strongly from China sales and pricing.

Chinese buyers have helped turn 2020 for Daimler, BMW and Volkswagen (DE :). Sales rose in the second half of the year, offsetting weaker results in other regions.

Daimler unveiled the EQS last week, a sedan built on a special platform for electric vehicles that is considered a solid competitor against market leader Tesla (NASDAQ 🙂 Inc if electric car sales increase.

“I feel much more comfortable today than a year or two ago that we can manage the increase in electric vehicles without too much margin dilution,” said CFO Wilhelm when he was asked about earlier Daimler predictions that electric vehicles would not be as profitable such as fossil fuel models by the end of this decade.

“Are we at margin par today? No, we are not,” he said. “But we’re making progress.”

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