Thursday, May 23, 2013

Audi vs. Mercedes: Who is Winning?

Two of the leading German car makers, Daimler AG (NASDAQOTH: DDAIF.PK) and Volkswagen AG (NASDAQOTH: VLKAY), have reported massive drops in profits in their most recent earnings releases. Daimler is the world’s third biggest luxury car-marker and the owner of the iconic Mercedes brand of cars and trucks. Volkswagen, the parent of Audi and the maker of the Beetle, has been eying global expansion, particularly in China, as it aims to compete with the big boys of the auto industry such as General Motors and Toyota. While Mercedes barely managed to increase its total car sales, Audi posted rising unit sales in almost all of its markets as the latter widened its lead over the former from 7,802 cars in Q1 2012 to 27,090 cars in Q1 2013. 
Daimler’s revenue fell by 3% to $34.05 billion from the first quarter of 2012, while net profit fell to $730 million from $1.8 billion. Volkswagen’s revenue dropped by 1.6% from $61.7 billion to $60.7 billion, while its profit after tax plummeted by 38.2% to $2.5 billion.
Overall, the number of vehicles sold by Daimler, including Mercedes cars, Mercedes vans, Daimler trucks and Daimler buses, remained fairly constant from last year at 501,600 units, while it reported just 1% increase in sales of Mercedes-Benz cars in first quarter of 2013. However, revenues in this unit fell by 6% to $18.59 billion from the year-ago-quarter. Daimler has attributed this decline to the changes made in the sales structure as it introduced new models of Mercedes cars. Overall, the company has put decent numbers in Asia, but continues to face challenges in the more mature markets of Western Europe and North America. 

Mercedes-Benz Cars, Daimler’s biggest segment, accounts for 55% of the top-line revenues while Daimler trucks, the second largest segment, accounts for 27% of total sales.
Volkswagen’s Audi posted a significantly better performance than Mercedes-Benz cars by recording a greater number of sales. Worldwide deliveries rose by 6.8% to 369,500 units for first quarter of 2012. Its sales in Europe increased slightly by 0.7%, but Audi’s shipments in its second largest market in Europe, the U.K, rose 9.7% to 39,242 units. While France remains challenging sales in China, its second biggest global market, increased by an impressive 14% to register more than 100,000 unit-sales in a single quarter.

Mercedes aims to surpass Audi by 2020 and wants to increase its deliveries by 4% in the current year. The business currently sells significantly less cars in China than Audi. Daimler is now planning to increase the Mercedes showroom count in China to 75 new outlets each year, as opposed to its previous target of 50. Currently, it has around 260 dealerships in the country, while its competitors have more than 300. China is the second biggest market for Mercedes, and it would be interesting to see how new generation S-Class models will do in the next quarter over there.
Meanwhile, by 2020 Audi is aiming to take its annual sales to 2 million units as it will invest $14.3 billion by 2015 to broaden its portfolio and increase its production. This year, Audi has set a target of delivering 1.4 million units, up from 1.3 million last year. The company is improving its portfolio of “sporty and premium” vehicles by adding new cars such as the SQ5 and RS5 Cabriolet this year.
Volkswagen and Daimler also have significant representation in the iShares MSCI Germany Index Fund ETF (NYSEMKT: EWG), while Daimler is also the fourth biggest holding in First Trust NASDAQ Global Auto Index Fund ETF (NASDAQ: CARZ). The Germany Index Fund mainly focuses on 52 large and mid-cap German stocks and is heavily exposed to the consumer discretionary sector. On the other hand the Global Auto Index, as the name suggests, is exclusively about automobile manufacturers. The Global Auto Index doesn’t have Volkswagen, but it, along with the Germany Index Fund, contains the undisputed king of luxury cars and a longtime rival of both Mercedes and Audi: Bayerische Motoren Werke, otherwise known as BMW.
In the last six months, the Germany Index Fund has risen by 10.6% while the Global Auto Index has rallied for an increase of 27.4%. However, the Global Auto Index still has a lower price-earnings ratio of 10.84 as compared to the Germany Index Fund’s 17.92. In the corresponding period, the Germany Index Fund has recorded a net outflow of $1.17 billion, while the Global Auto Index has seen a net inflow of $8.87 million. The Germany Index Fund gives a significantly higher 30-day-SEC yield of 2.64%, while the Global Auto Index gives 0.83%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.