German auto giant
has used the global slowdown during the pandemic to accelerate its restructuring plan. That includes plans to spin off its trucks and buses unit, rename itself after its
luxury brand, and make a bigger push into electric vehicles.
The stock (ticker: DAI.Germany) has lagged behind its peers—gaining 22.5% in the past five years, to 73.41 euros ($88.71)—compared with a 199% increase at
and Peugeot combo
(STLA), and 74.4% at
While the shares are up 143% in the past year, investors might not have fully factored in the potential of Daimler’s transformation into an electric vehicle player to rival Tesla, and the benefit of the global semiconductor shortage that has restricted supply. The chip shortage means
has raised prices and increased margins because it has used its limited semiconductor supply in its costliest vehicles.
“These factors do not seem to be properly priced in,” says Michael Foundoukidis, an analyst at investment firm Oddo. “There is still further substantial upside, despite the stock’s excellent run in the past 12 months.”
Stephen Reitman, an analyst at Société Générale, expects the stock to rise 44%, to €106, on the back of the new electric luxury sedan, the 2022 Mercedes EQS— an upscale challenger to Tesla. The EQS is expected to be available this summer at prices starting at about $100,000, according to estimates by Reitman.
Mercedes currently sells three electric vehicles, and the EQS will be a timely reminder that the brand will be a strong presence in EVs and deserves a valuation that starts to reflect this, Reitman wrote in an April note.
Daimler, which has a market value of €78.8 billion, employs 288,000. It fetches a low multiple of seven times this year’s expected earnings, and is valued in line with its peers.
The company posted net profit of €4.4 billion for the first quarter, a big increase from the €168 million for the same period the previous year, when the pandemic first hit. “Deliveries, revenue, and profits increased significantly, particularly thanks to tailwinds in China, a strong product mix, and favorable pricing, supported by industrial performance enhancements and cost control,” finance director Harald Wilhelm said in a statement.
The company, based in Stuttgart, dates back to 1886, when Gottlieb Daimler and Carl Benz made history with the invention of the automobile. It now sells around 2.8 million vehicles annually and is among the 15 biggest car and truck makers in the world.
The Mercedes EQS’s large battery capacity, luxurious interior, and a futuristic, high-performance dashboard with a variety of screens led Tim Rokossa, an analyst at Deutsche Bank, to dub it the “Tesla fighter.” “The EQS will be the first model to have the hyperscreen included, and we believe this will also very much appeal to the more technical customers,” Rokossa says. The EQS also complements the recently launched Mercedes S-Class luxury vehicles.
The disposal of Daimler’s truck business—which contributes more than 15% of earnings—should help boost the share price and market capitalization. The move still requires the approval of investors. Because the auto maker’s limited supply of chips are currently reserved for the top models, management now expects adjusted return on sales margins at the Mercedes-Benz unit of 10% to 12%, versus 8% to 10% previously.
All indicators suggest that this old-line luxury-car maker is on the road to new growth.
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