London: Daimler AG plans to slash headcount at its Mercedes-Benz cars division to help manage the disruptive shift to self-driving, electric cars.
The job cuts are aimed at saving more than 1 billion euros ($1.1 billion) by the end of 2022, Daimler said on Thursday.
The Stuttgart-based company plans to eliminate 10% of management positions as part of the effort to boost results. The shares tumbled as much as 4.7% in Frankfurt trading.
After two rapid-fire profit warnings earlier this year, new Chief Executive Officer Ola Kallenius is under pressure to map out a strategy to revive flagging earnings, while at the same time ensuring that Daimler doesn’t lose its technology edge.
A costly transition to electric vehicles, together with legacy diesel issues, has forced Mercedes to drop its Ebit margin outlook drop to a 3% to 5% range for 2019. With global demand for cars softening, Daimler has little choice but to cut costs to eventually return Mercedes’ profitability to its long-standing range of 8% to 10%.
The road to get there will be long one. Excluding the fallout from trade wars, Daimler is targeting an operating profit margin of at least 4% next year and 6% in 2022. The trucks division will target a return on sales of more than 5% in 2020 and 7% in 2022.
Daimler shares fell to as low as 51.04 euros and were down 2.7% at 52.11 euros at 9:43am in Frankfurt, paring gains for the year to 13% and valuing the company at 55.7 billion euros.
At the five-star Corinthia Hotel in London, the successor of veteran Dieter Zetsche faces investors face-to-face Thursday at his first big strategy presentation since taking charge of the German auto icon in May. The company’s returns have fallen well below the margins of French mass-market rival PSA Group.
Profitability at Daimler’s sprawling commercial vehicle operations — including Mercedes-Benz trucks in Europe, Freightliner in North America and Fuso in Asia — has also trailed rival Volvo AB for years.
“Daimler urgently needs to move away from its ‘spray and pray’ investment philosophy and toward a materially more focused, sharpened allocation of its funds,” Arndt Ellinghorst, a London-based analyst with Evercore ISI, said in a note prior to the presentation. “Otherwise, the group will simply be unable to self-fund its premium mobility aspirations.”