Mercedes Cars Become More Elusive After 43% Jump in Prices
Comment of the Day

February 17 2023

Commentary by Eoin Treacy

Mercedes Cars Become More Elusive After 43% Jump in Prices

This article from Bloomberg may be of interest to subscribers. Here is a section:

Mercedes is hiking the prices even of entry-level models like the A-Class hatchback. Drivers are increasingly only be able to buy versions of the car with bells-and-whistle options as standard.

Mercedes isn’t alone. Around the world, manufacturers are reaping the benefits of selling fewer but more expensive cars. In the US, average monthly payments for a new car nearly doubled from late 2019. And as battery-powered vehicles tend to cost more than the average combustion-engine car, the shift to EVs may make the affordability crisis even worse.

Eoin Treacy's view

Companies have clearly made the decision to push the cost of migrating from internal combustion engines to batteries onto consumers and governments. The increasing range of subsidies to support EV rollout and the increasing burden of carbon credit expense ensure companies can produce fewer vehicles and charge more for them.

That will last until a company can produce at scale profitably. That will take time because auto companies first need to become fully integrated into the battery manufacturing sector. In that regard   China is in a strong position because it has the largest market and the most battery manufacturing capacity.

Electric vehicles have fewer parts. As a result companies have fewer suppliers. Robert Bosch does not have a listed equity but it has plenty of debt instruments. The yield on the 1.37% 2024 has jumped from -0.42% to +3.44% over the last year and half. The yield is still trending higher and one has to question whether it deserves its A rating when its customers are so set on avoiding buying its products.

The battery is a major component and there remains considerable debate about what the best mix of longevity, range and charging time are. At the same time, software is an increasingly dominant differentiator for auto companies since they no longer rely on the quality of engine manufacturing. That means they also need to raise revenue to fund a transition and raising prices is part of that.

Mercedes Benz has jumped back to test the region of the peaks, first reached in 1999. Every time the share has approached the €80 area, it has failed. That implies clear scope for at least some consolidation in this area.

The plan to continue raising prices is completely predicated on consumers ability to continue paying. In turn that assumes the wealthier portion of the population will continue to have the resources to pay up even amid the threat and reality of recessions. The trends are certainly worth monitoring for any sign of inconsistency. 

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