Daimler gives tepid 2017 profit outlook amid spending push

[STUTTGART] Daimler AG signaled that spending for the future would take priority over short-term earnings gains as it issued a tepid profit forecast for 2017 and vowed to continue aggressive investment in self-driving, electric cars.

Profit will rise only "slightly" this year, after adjusted earnings before interest and taxes increased three per cent to 3.58 billion euros (S$5.455 billion) in the fourth quarter, the Stuttgart, Germany-based company said on Thursday.

The cautious guidance comes as the Mercedes-Benz brand prepares to roll at least 10 electric vehicles and works to stay ahead of intensifying competition from Tesla Inc and established rivals such as BMW AG.

"In the coming years, we want to actively shape mobility with groundbreaking innovations," Daimler chief executive officer Dieter Zetsche said.

"Those who wish to shape the future of the automobile at the forefront of the automotive industry need both financial strength and innovative skill."

Daimler, which traces its roots to the inventors of the automobile, is seeking to set the pace as cars start driving themselves and regulators demand cleaner vehicles.

That requires the manufacturer to invest in technologies with an uncertain payoff, as consumers balk at battery-powered models because of costs and charging concerns.

While an aggressive rollout of new Mercedes models like the revamped E-Class turned around the brand's stodgy image and lifted its sales to the top of the luxury-car ranking last year, profits have been held back due to the increased spending on future technologies.

Daimler's research and development costs jumped by 15 per cent in 2016 to 7.6 billion euros, from a level which the company said was already "very high". These outlays will rise to 8.1 billion euros on average this year and next.

"Mercedes' position as number one isn't set in stone," said Frank Biller, a Stuttgart-based analyst at LBBW, describing the 2017 outlook as "conservative but prudent" in the light of pressures ahead.

"They'll defend the top spot this year, but next year there'll be more tension." Daimler shares fell as much as 4.2 per cent, and were 3.3 per cent lower at 67.74 euros at 11.11am in Frankfurt trading. The company's fourth-quarter earnings missed a 3.74 billion-euro average of nine analyst estimates compiled by Bloomberg, after profits at the truck unit dropped 47 per cent, due to weakness in North American markets and "intense competition" in Europe.

The trucks slump was more than offset by a 22 per cent jump in fourth-quarter profit at the cars unit. Mercedes is coming off a milestone year. The brand's sales rose 11.3 per cent to 2.08 million vehicles in 2016, allowing it to outsell BMW for the first time in more than 10 years. Mercedes's comeback was fueled by plugging holes in its lineup with new SUVs and compacts.

Now that the obvious gaps have been filled, Daimler faces the challenge of maintaining its lead as rivals BMW and Audi pursue their own revamps. Daimler's chief executive officer must show that the recent sales surge wasn't a fluke even as he guides the company into an era of electric-powered robo-taxis.

"We have great staying power from our financial success to build our future business," Mr Zetsche said.

"We expect we'll keep our nose ahead" at least until the end of the decade.

BLOOMBERG