German car and truck maker Daimler reported a plunge of nearly 70 per cent in first-quarter operating profit on Thursday due to the coronavirus pandemic and warned that the cash flow it uses to pay dividends would fall this year.
The maker of Mercedes-Benz vehicles suffered as customers shunned car and truck showrooms during coronavirus lockdowns and analysts said the slide in Daimler’s valuation over the past year put more pressure on it to deepen alliances with rivals.
Daimler said preliminary adjusted first-quarter earnings before interest and tax (EBIT) slumped 68.9 per cent to €719 million ($777 million) while both vehicle sales and revenue would fall this year. Adjusted EBIT for Mercedes-Benz vehicles fell more than 56 per cent to €603 million.
NordLB analyst Frank Schwope said the company’s fourth profit warning since Chief Executive Ola Kaellenius took over in May was no surprise but the pandemic was putting pressure on carmakers to find savings through alliances or mergers.
“Fiat Chrysler and PSA are just the start. Perhaps it is time for Daimler to think about a deal given the low valuation,” he said, referring to the planned merger between the Italian-U.S. car giant and France’s Peugeot.
Daimler’s shares have fallen 52 per cent over the past year to €27.94 per share, leaving its market value at €29.8 billion.
NordLB’s Schwope said three combinations for Daimler were logical: deepening an alliance with BMW or partners Renault and Nissan, or combining with Volvo which shares the same Chinese investor, Geely.
Earlier this month, German luxury car maker BMW reported a 20.6 per cent drop in first-quarter sales and said it was expecting a further decline in demand.
Renault, meanwhile, said on Thursday it was in talks with the French government to secure a state-backed loan worth several billion euros to shore up its liquidity during the pandemic.
Overall, car sales in Europe tumbled by more than 50 per cent last month with Italy - which has been hit particularly hard by the pandemic - reporting the biggest drop of 85.4 per cent, according to data from the European Auto Industry Association.
Germany, Europe’s largest economy, has begun to ease some restrictions imposed because of the coronavirus pandemic, allowing carmakers to restart production.
Mercedes-Benz said on Wednesday it was ramping up engine production at its plant in Bad Cannstatt, Stuttgart, as it gradually reopens factories in Europe using lessons learned from its resumption of production in China.
Across the Atlantic, Ford Motor Co estimated a loss of about $2 billion for the first quarter and had to raise $8 billion from investors to shore up cash reserves.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.