Mercedes-Benz Group AG

XETRA:MBG

Earnings Call Analysis

Demanding Q1 for Mercedes-Benz amid Market and Supply Challenges

In a demanding Q1, Mercedes-Benz faced market evolution, supply chain issues, and product transitioning. Despite lower car sales which led to a drop in revenue and EBIT, the company maintained a solid cash flow of €2.2 billion and a net cash position of over €33 billion. New product launches, including the all-new G-Class and the upgraded EQS, are expected to boost sales in the coming quarters. Guidance for the year remains steady with key targets like a 10-12% return on sales for cars and a 19-21% xEV share. The company also announced a €3 billion share buyback program running in parallel with the existing program .

Overview of Recent Performance

The recent earnings call for Mercedes-Benz highlighted the significant challenges faced in the first quarter. Lower car sales, driven by supply constraints and product transitions, resulted in a decline in revenue, EBIT, and EPS. Despite these setbacks, the net income was less impacted due to the share buyback accretion effect. A notable achievement was a solid cash flow of EUR 2.2 billion, contributing to a robust net cash position of over EUR 33 billion by the end of the quarter.

Product Highlights and Market Response

Several new models were introduced in Q1, including the all-new G-Class and the electric G-Class, with unique features like G-TURN and G-STEERING. Upgrades to the EQS, such as an extended range of over 800 kilometers and new interior features, were also launched. These products are anticipated to bolster sales and improve the product mix throughout the year, especially in H2.

Sales and Regional Performance

Total car sales were at 463,000 units, reflecting the impact of supply issues and market dynamics. Sales in Europe and the U.S. remained stable, while China experienced constraints due to E-Class availability and model year changeovers. The easing of supply constraints is expected to benefit the GLC, resulting in an 8% increase in the Core segment. The Top-End vehicle segment saw a mixed performance, with 67,000 units sold, mainly affected by product transitions and supply chain issues.

Outlook and Guidance

Management emphasized that Q1 should be seen as the trough, with expectations for improved volumes and mix in the following quarters. Despite a challenging environment, Mercedes-Benz confirmed the full-year guidance for an adjusted return on sales for Cars at 10% to 12%. This optimism is supported by anticipated volume increases, a favorable product mix in H2, and stable pricing levels. Continued tailwinds from lower raw material costs are expected, even as supply chain-related costs pose headwinds.

Performance in the Vans Segment

The Vans segment had a strong start to the year, driven by commercial van sales, particularly in the U.S. and China. The launch of new EV models such as the eSprinter and midsized EQV is expected to increase EV share in the coming quarters. Revenue increased in line with volume, and adjusted EBIT rose by 11% to EUR 800 million. The return on sales was significant at 16.3%, despite some inflation and supply chain cost headwinds.

Mobility and Financing

The Mobility segment maintained stable new business levels, with growth in EV-financed vehicles. Despite increased credit risk costs in the U.S., the segment's profitability improved due to better acquisition margins. The overall adjusted return on equity for this segment is guided at 10% to 12% for the full year, with expectations of improvements in H2.

Commitment to EV Transition

Mercedes-Benz remains focused on investing in EV technology, with significant upcoming models like the MMA in 2025 and electric versions of the C-Class and GLC by 2026. The company is prioritizing strategic investments to maintain cutting-edge technology while managing costs effectively. Plug-in hybrids are also highlighted as an important tool for transitioning, especially in markets where full EV adoption may be slower.

Strategic Focus and Capital Allocation

Cash flow generation and capital allocation are key priorities. A new EUR 3 billion share buyback program is set to run in parallel with the existing one, aiming to purchase up to EUR 7 billion in shares by Q1 2025. This demonstrates a strong commitment to returning value to shareholders while maintaining flexibility to adapt to market conditions.

Conclusion and Investor Takeaways

Mercedes-Benz's management is confident that the company will rebound from the challenging first quarter with stronger performance in subsequent quarters. Investors should note the robust cash position, ongoing product innovations, and strategic focus on EVs. The company's clear guidance and commitment to efficiency improvements signal a positive outlook, despite current market uncertainties.

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the global conference call of Mercedes-Benz.

At our customers' request this conference will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the Mercedes-Benz website.

This short introduction will be directly followed by a Q&A session. [Operator Instructions]

I would like to remind you that this telephone conference is governed by the safe harbor wording that you will find in our published results documents.

Please note that our presentations contain forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements.

Forward-looking statements speak only to the date on which they are made.

May I now hand over to Steffen Hoffmann, Head of Mercedes-Benz Investor Relations and Treasury. Thank you very much.

[Steffen Hoffmann, executive]

Good morning, ladies and gentlemen. This is Steffen Hoffmann speaking. On behalf of Mercedes-Benz, I'd like to welcome you on both the telephone and the Internet to our Q1 results conference call.

I'm very happy to have with me today, Harald Wilhelm, our CFO.

To give you maximum time for your questions, Harald will begin with an introduction directly followed by a Q&A session. The respective presentation can be found on the Mercedes-Benz IR website.

Now I'd like to hand over to Harald.

[Harald Wilhelm, executive]

Yes. Thank you, Steffen, and good morning, everybody. Welcome to the Q1 call.

Well, if I look at this quarter, I would say this is a demanding quarter looking at market evolution, supply chain, product transitioning. Therefore, I think it's important that we all understand what are the temporary impacts in the quarter and what are the implications for the full year, in particular, for the guidance.

With this being said, now let's have a look at the numbers at the group level, Page 2. Obviously, lower car sales lead to lower revenue, EBIT and EPS. So the EPs reduction, however, is smaller -- lower than the EBIT reduction. The net income is less impacted, and we have the accretion effect from the share buyback on EPS.

We delivered a solid cash flow of EUR 2.2 billion. So you see cash matters and is in the focus, and that supported a very comfortable cash position -- net cash position with more than EUR 33 billion by the end of the quarter.

Before we turn to the numbers of the first quarter in more detail, I would like to highlight a few models -- products, which came into the market in Q1. I think this is also important to understand the Q1 sales and mix evolution as these products are going to hit the market in the remainder of the year and obviously the time ahead of that.

So what are they? First and foremost, the all-new G-Class on the ICE. Next to it, we have the electric G-Class world premiere in U.S. and China last week simultaneously. You might have seen that this comes along with unique driving functions like the G-TURN, the G-STEERING and the intelligent off-road crawl functions.

Well, what else? We saw an extensive upgrade of the EQS with more than 800 kilometers range, new executive rear seats and the standing star in front of the hood. And lots of stuff on the AMG side with different E-Class variance of AMG, the 53 4-door GT Coupe variant in the first quarter. So again, these products will hit the market in the remainder of the year, which will help sales, but in particular, mix. And much more to come in the quarters and in the time ahead of us.

Let's look at the sales evolution, Page 4, a bit more in detail. Total sales at Cars were at 463,000 units impacted by supply constraints, product transitioning and market dynamics.

So let's zoom a bit into the regional evolution. We could see basically a stable evolution in Europe and in the U.S. in the first quarter.

We zoom and deep dive a bit further into China, what happened here. The E-Class availability was constrained in the first quarter. We also saw effects from the model year changeovers and the product launches. These product introductions, as just mentioned before, will support H2.

And overall, we have seen a market weakness in the first quarter. Also our Top-End vehicle products could not completely escape from that market weakness.

If we look at the sales evolution from a segment structure. Globally, we can say that the first quarter was still constrained in terms of supply, but this is on the way to ease. The easing supply constraints had an immediate impact on the GLC, in particular, which means that the Core segment increased by 8%.

On the Top-End vehicle side, this is comparatively lower than last year, which was a pretty decent and a high level. So the quarter 1 on the Top-End is a mixed bag of product transitioning with 67,000 units. We saw the impact from the model changeovers at the G-Class, the changeovers in high-volume vehicles like the AMG E-Class and the GLCs as well as supply chain bottlenecks. In the Top-End, as I just mentioned before, we also saw sales a bit lower that also impacted on the S-Class. However, S-Class remains the undisputed leader in all regions.

Overall, we see that sales should improve over the quarters. The top-end mix should also improve in H2 as well while we continue to take a cautious view on the market overall.

If you look on the BEV side of things in the first quarter, the xEV share is at the prior year level with EQC and smart reaching the end of their life cycles in H1. We also see some slowdown in the EV adoption rate across the industry, and therefore, we adopt our offerings to it. In this period of uncertainty, in terms of the EV transitioning, our top-notch plug-ins can play an important role in this transitioning.

Cars financials, Page 5. Revenue is down in line with the volume. ASP at EUR 75,000, EBIT at EUR 2.3 billion adjusted; cash flow -- CFBIT at EUR 2.3 billion.

Let's go through the EBIT walk in more detail on the Page 6. So the return on sales adjusted is at 9% in the first quarter. How did we get there? Number one, the bucket volume structure net pricing is down driven by the lower volume; the mix impact, as I outlined before; a net pricing, which is in total positive; and additional measures, investments into the product life cycle to keep the product at the cutting edge.

Furthermore, we see in the bridge FX negative due to the Turkish lira, whereas on the industrial performance side, we see a positive evolution. The main effects here are tailwinds from lower raw material prices and improved operational efficiencies, which suggests that we're doing our homework in terms of the efficiencies.

The R&D spend is slightly below prior year level. Main effects in the other bucket of minus EUR 200 million are the BBAC at-equity result and the absence of some prior year onetime effects.

On the adjustment side, we see EUR 133 million upside related to legal proceedings in the diesel. You might have heard the positive news for our company that the DOJ has closed the criminal inquiry into Mercedes-Benz related to diesel emissions in the United States. Here, I would like to point out that the EUR 133 million result from various developments and assessments and may not necessarily relate only to one specific proceeding or case.

With this altogether, the EBIT is booked at EUR 2.5 billion with a ROS at 9.6%. Obviously, this is not the level where we want to be. And we'll talk later in terms of where we wanted to be for quarter 2 and subsequent quarters.

On the cash flow side Cars, Page 7, the CFBIT is at EUR 2.3 billion with a cash conversion at 1. Slight tailwind from working capital at EUR 0.3 billion, more or less all balanced.

Net investments in PPE and in intangibles are lower than the depreciation, which means that the investments are prioritized and stringently managed.

The other line includes adjustments of the BBAC at-equity result in the absence of a [ divi ] in the first quarter.

So if you turn to the Vans side, a strong start into the year with regards to sales driven by the commercial vans. Especially strong performance, in the U.S. and in China.

Our strong product portfolio has been further supported with the launch of the new eSprinter and the midsized Vans.

That product substance and portfolio, the healthy mix, robust net pricing and price premium, combined with efficiency measures all in all resulted in another quarter with very good financial performance on the Vans side. At the same time, obviously, we continue to prepare for VAN.EA with a groundbreaking in Vitoria being the latest example.

Sales numbers on the Vans side, total sales 7% up in all regions. As I just said before, the all new EV portfolio has been launched in the quarter 1, therefore, not leaving traces in the quarter 1 yet, so being available in the quarters to come. And with this, we obviously expect also the EV share to increase with the new eSprinter and midsized EQV and eVito once they're fully available.

Key numbers on the Page 10 for Vans, all figures up. Revenue is up in line with the volume. EBIT adjusted, up by 11% to EUR 800 million. And also the cash conversion, up by more than 50%.

EBIT bridge on the Page 11. So return on sales adjusted at 16.3%. Where is it coming from? Significant tailwind from the volume structure pricing bucket with increased volume with positive structure, healthy pricing supported by the product substance.

On the industrial performance side, we have a bit of a headwind from higher inflation and supply chain related to cost.

With all of this, the EBIT adjusted is at EUR 800 million.

On the adjustments, same comment as for Cars related to legal proceedings in the diesel.

On the cash flow side of Vans, the CFBIT reported, EUR 0.6 billion; adjusted, EUR 0.7 billion; cash conversion, 0.9. Moderate working capital uplift. The net investments exceed the depreciation, no surprise, as we have invested in our plants to make them ready for the recently announced models as well as the VAN.EA generation to come.

On the other buckets, the same comment as on Cars.

On Mobility, what can we see here in terms of the highlights in the first quarter? The new business remained at the same level.

We see in China penetration rates are lower due to significant competition in the local banking sector. The EVs -- the xEVs see an increasing acquisition rate. Mobility continues to support the ramp-up of the EVs with every second vehicle being supported by MBM financing options.

The profitability of the new acquisitions continues to improve. The increase in the cost of credit risk is mainly driven by the development in the U.S. And at the same time, we continue to develop our charging business with more charging hubs already being up and running in the first quarter.

On Page 14, the key numbers. New business, as I just mentioned before, at the same level. Portfolio also roughly same level as at year-end 2023.

And for the EBIT, we look on the next page. On the walk, Page 15. So as we guided in the quarter 1, which I said, would be in single-digit territory. That's what you can see here on the chart. How did we get there? Higher cost of credit risk, mainly driven by the U.S. due to increased credit losses in the consumer segment were one of the key drivers. Besides the continued improved acquisition margin, we see a positive impact from the development of the portfolio versus the first quarter. However, the overall portfolio margin is still under pressure as it takes time for the improved acquisition margin to be reflected in the portfolio.

At the same time, we also see an impact from a bit lower remarketing results at Athlon. And we also included in these numbers the investments in terms of the charging business for the first quarter. With all of that, I mean this is at 8.5% return on equity.

Group numbers, Page 16. So Cars, Vans, Mobility, I already explained. Leaves the recon, reconciliation item. Here, basically, we find the at-equity result of Daimler Trucks with a bit more than EUR 200 million included. The EBIT adjusted at EUR 3.6 billion. After the adjustments I elaborated before, we see a group EBIT reported at EUR 3.9 billion.

How did we turn that into cash? Page 17. Income taxes and obviously division evolution I explained already before. Income taxes at minus EUR 0.7 billion, a bit lower. That's the usual seasonality. And we have slightly negative impact due to interest received, seasonal pension effect and a bit of others in the recon items.

All in all, a pretty strong cash flow at EUR 2.2 billion in the first quarter and cash adjustments of EUR 90 million for legal proceedings related to diesel.

Looking at the NIL evolution, Page 18. So end of the quarter, we see a comfortable EUR 33.6 billion. That has been supported by the cash flow obviously of EUR 2.2 billion. At the same time, we bought back shares for around EUR 300 million.

Let me update you shortly on the capital allocation, Page 19. On the chart you see on the left-hand side what we announced in February in terms of new -- our new capital allocation framework. How do we implement it now in May 2024? Right after the AGM, we will start with our already announced additional EUR 3 billion share buyback program. From then onwards, and I think this is a piece of news here, both buyback programs, the remaining EUR 4 billion and the new EUR 3 billion, will run in parallel. They will be executed by an independent bank, which makes its trading decisions, obviously, without influence by ourselves. As a milestone, we expect buybacks to reach a total of around EUR 4 billion by quarter 3 this year and to finish with a total share of buybacks up to EUR 7 billion all in all in first quarter 2025 before the AGM.

As of today, approximately 13 months after we started our initial share buyback, we have already acquired approximately EUR 2.3 billion. This means in around 11 remaining months, we plan to buy back additional shares in the amount of up to EUR 4.7 billion. Both share buybacks will be executed through the stock exchange with the purpose of redeeming the shares at the end of the program before AGM 2025.

As we said, we intend to ask for a renewal of the authorization for SBBs in our AGM in 2025 to further continue share buybacks in line with the share buyback policy. With any share buyback, we'll keep, however, flexibility on the execution in case of unexpected market developments.

So let me sum it up on this one here. I would say cash flow generation remains one of the key focus topics of the company, as you can see with the cash flow in the first quarter. And capital allocation, shareholder return obviously equally important to us.

With this, let's turn to the outlook on Page 21. For the assumptions, please read the chart carefully, what is written there in terms of economic -- macroeconomic and global uncertainties.

Let's jump to the Cars side in terms of the situation with regard to the supply. So we see that the current supply bottlenecks are in the way to ease on GLC and on E-Class and are expected to improve further. The Q1 is considered to mean to be the trough. In terms of the sales, quarter 2 should be better already.

What does it mean for the sales guidance? Total car unit sales, we expect at prior year level with all-new E-Class and GLC expected to support the Core segment development this year. And the Top-End vehicle segment improving versus the first quarter level due to the product transitioning, which I emphasized before.

Looking at the regions. In Europe, overall, we see a sentiment, which is unchanged. The more detailed picture in Europe shows, however, a bit of a heterogeneous picture in the different markets.

With regard to China, we do see the availability of products to improve, in particular, on E-Class. Here, we see a very good product acceptance for this one and others like the GLC. So from the product portfolio side and an availability perspective, we see growth potential. However, overall, in terms of market assessment for China would remain a cautious perspective.

On the U.S., we still see a solid momentum for sales and demand with a positive year-on-year development. Positive effects come in particular on the SUV side, and here, I would mention the GLC.

On the xEV share, we confirmed the guidance at 19% to 21%. Be aware our consolidated smart sales are running out since the new smart is not part of the reported sales figures anymore.

On the adjusted return on sales Cars guidance, this is unchanged at 10% to 12%. So how do we want to get there with the 9% in the first quarter? Well, we do expect the volume to increase over the quarters. We clearly target a mix improvement in the second half of the year. We want to hold pricing and defend it at the current levels. We clearly see raw materials improving further, generating further tailwinds. At the same time, we see supply chain-related costs generating further headwinds. However, all in all, material costs remain a net positive, i.e., a further tailwind.

So with this, all in all, we confirm a 10% to 12% return on sales adjusted in a continued demanding environment. For PPE, R&D, cash conversion rate adjusted for Cars, all unchanged.

So with this, I would move to the Vans side. So here, the guidance is unchanged. We had a strong quarter 1 as we walked through before with the start into the year. We have a comfortable cushion for the remainder of the year considering current macro developments and uncertainties with regard to H2. We stay rather prudent and confirm full year guidance at 12% to 14% return on sales adjusted. We also expect a healthy quarter 2 in terms of return on sales.

Market demand is expected to be softening in private and commercial vans side. Full year guidance on all the other KPIs are unchanged.

On Mobility, the adjusted return on equity is also unchanged in the range of 10% to 12% for the full year. We see quarter 1 as the trough with improvements in the second half of the year despite a further increase in the ramp-up cost of our charging infrastructure.

So how do we get there from the 8.5% in the first quarter? Positive effects from the increased acquisition margins translating into the portfolio, as I emphasized before, and some improvements in the cost of credit risk compared to quarter 1.

On the group guidances that follows Page 22, follows the same premises as a segment guidance. All group guidances KPIs are confirmed.

With this, I would wrap it up here in terms of the summary, the takeaway from the first quarter. So we clearly expect the volumes to come up. We do see quarter 1 as the trough. We have a great product lineup. We talked about the Top-End vehicle products to come into the market in quarter 2 and beyond. In particular, in H2, we see a strong potential and momentum here from the products and further on in 2025. Obviously, I emphasized the G-Class, the GT, the E-Class AMG versions, the GLC AMG versions and a lot of products to come in 2025 and beyond.

At the same time, we stay flexible on the transitioning from ICE to EVs and do our homework in terms of efficiency while staying focused on the cash generation and on capital allocation.

With this, I would now be happy to take your questions.

[Steffen Hoffmann, executive]

Thank you, Harald. [Operator Instructions] Now before we start, the operator will explain the procedure.

[Operator]

[Operator Instructions]

[Steffen Hoffmann, executive]

We start the Q&A and the first question goes to Tim Rokossa from Deutsche Bank.

[Tim Rokossa, analyst]

It's Tim from Deutsche Bank. Harald, do you have a number of things going for you. There's a really strong buyback now in parallel. The free cash flow remains strong and that is amazing. But obviously, the 9% Cars margin is really tough to swallow this morning. And we knew that Q1 would be weaker. This is still weaker than most had anticipated, and you know how important this KPI is. So it is quite crucial for you guys to rebuild the story with this very strong decline that we have now seen for multiple quarters in a row.

You say that Q1 was the trough. Will Q2 already see a material turning point for the Cars margin? Will it be above 10%? Or is this sort of like a slow transition into the second half and we have to wait for that time to really see this?

Secondly, this is a pretty busy auto morning. You see a couple of consistent themes from the reporting. Pricing seems to hold up very well in the mass market as well as in the premium market. Mix is not great. And volume seems to be quite weak for everyone.

On the positive side, that tells us the industry remains very price-disciplined. We wanted that, it's good. But at the same time, it is quite curious why everyone really struggled on the volume side and talks about product availability being an issue and a lot better volumes to come in H2. Can that really be the case? And what are you preparing in terms of pricing for if everyone really needs to make up a lot of volume with all the newly available models launched in H2?

[Harald Wilhelm, executive]

Yes. Thank you very much, Tim. So on the first question, how do we exit from the 9% ASAP? I can say very clearly I'm not happy with the 9% in the first quarter. Very, very clear. And there's a lot of emphasis on getting out of that territory as quickly as we can.

What do we expect to happen in the second quarter without giving a detailed guidance now for the quarter? But clearly, we target volume higher in the second quarter than in Q1. That's why I did say before that quarter 1 is a trough.

I do see that on the material cost, in particular, on raw mats, there should be further tailwind in the second quarter. I think that gives opportunity to improve in the second quarter already, and clearly, I would have the ambition that we see a double-digit again in the second quarter whereas the mix improvements rather kicks in, in the second half of the year in terms of Top-End vehicle availability and further ramp-up given the supply constraints. So that should be trajectory to get to the full year guidance of 10% to 12%.

In terms of your second question, so much stuff to come. I have a bit of a different perspective, if I may say. You could see the high level of, yes, demand materializing on GLC, GLC availability, with 8% up in the first quarter on the Core driven by the GLC.

What is my message here? These products are in high demand. So it's a product substance, which is driven -- which drives the market dynamics. And we see exactly the same market feedback demand on the E-Class also in China. We were constrained also in other overseas markets, in particular, in South Korea. So once the products are now available in these markets, we really see in the demand for customers for it with healthy pricing level.

We stay competitive, but the pricing levels on the products are healthy. I commented before, are stable. So as we discussed, I think, at the earlier occasions, the heat is rather on the EV pricing. The ICE pricing is in a solid territory.

[Steffen Hoffmann, executive]

Thank you, Tim. And we continue with George Galliers from Goldman Sachs.

[George Galliers-Pratt, analyst]

Yes. The first question I had, which was a little bit related to Tim's question was just with respect to the drop in wholesale that we saw in Q1. Obviously, if we compare that to the run rate of the prior 3 quarters, it looks like you had around a 60,000 -- 50,000 to 60,000 unit drop. Could you just help sort of break down what the buckets are there in terms of how much of that is E-Class changeover? How much of that is maybe due to demand dynamics? And how much of it is a result of the supply chain constraints that you flagged?

And then the second question I had was a more general question. One of your peers at their full year results called for a comprehensive review of EU fleet CO2 legislation. Do you share the view that this should be revisited? And would a change in legislation actually prove economically a net benefit for you given the ongoing investments in battery electric vehicles at this point in time?

[Harald Wilhelm, executive]

Yes. Thank you, George. Well, I would say, in terms of the volume drop in the first quarter compared to previous year and compared to where we want to be on a full year basis, product availability is still the #1 in terms of volume size and that refers mean a lot to e-cars availability; #2, I would say, is now the product transitioning in various segments but in particular, on the Top-End side; and #3, I think, all in all, is some softness on the market in the Top-End in China and maybe also a bit in overseas. So that's the ranking.

How I would see it? You can read from the confirmation of the full year sales guidance that obviously we do expect to overcome that quarter 1 situation, as I just commented before following Tim's question, already with quarter 2 sales being up and then for the progression in H2.

Your second question in terms of revisiting CO2 legislation. I think if I'm not mistaken there is a juncture in 2025 at the EU level to see whether -- or where the EV penetration stands with regard to the 2035 ICE ban. I think, I mean that probably makes perfect sense in order to see whether the customer demand is there to support the transitioning as initially envisaged. Therefore, taking a pragmatic view, I think we support that perspective.

However, let me say at the same time as we start to be a bit too nervous and I think too much on the back foot in terms of EV transitioning in these days, it remains our objective to go electric. It remains our objective to go CO2-neutral. And therefore, I think keeping ambitious targets also in terms of EV transitioning is what we globally support in line with our strategy.

[Steffen Hoffmann, executive]

Thank you, George. And we continue with Stephen Reitman from Bernstein Societe Generale.

[Stephen Reitman, analyst]

Yes. Could you give us some more comments, please, on what you -- how you see the market in China developing? You mentioned that the E-Class has been very well received. Could you talk also about the general environment you're seeing, both on ICE and for your BEVs in terms of incentive activity and your pricing level there, please?

[Harald Wilhelm, executive]

Yes. Thanks, Stephen. So we zoom a bit more in depth on the China market. Number one, availability on E-Class, as I emphasized. So once -- that is coming up. We can see a demand for the product also at healthy pricing level.

We clearly see a very strong field of competitors and product availabilities in the EV space. I think many of you were in Beijing last week on the show. So definitely a very strong supply of our products in the EV space. And we positioned ourselves here on the EV side, but as you can see also from the numbers we're not artificially pressing or trying to buy a share with the products on the EV space in China. So we are rather leveraging the products where we feel intrinsic customer demand, as just outlined before.

And then number three, I would mention that globally given the macro evolution in China and still, I think, some lack of consumer comfort and given the consumer sentiment, we see the dynamics of the market still being at a slower pace, including the Top-End segment, which also leaves some traces in the first quarter and probably also for the full year.

However, this is not related, I think, to our products as we see that our products in the Top-End space, in particular, the S-Class remain absolutely market leader not only in China, but in all of the markets. But that is an evolution, which [ hits ] also Top-End globally. So that's what I would say roughly in terms of the dynamics on the China market.

[Steffen Hoffmann, executive]

Thank you, Stephen. And the next gentleman line is José Asumendi from JPMorgan.

[Jose Asumendi, analyst]

José from JPMorgan. Just a couple of questions, please. The first one, can you please quantify how many units did you sell -- did you miss in terms of deliveries in Q1 for Mercedes-Benz Cars due to the supply bottlenecks? Can you maybe just give us a few more examples of why you think these bottlenecks are easing into the second quarter? Is this something that you've already seen in Q2? It looks like the topic has been dragging for a couple of quarters, so any anecdotes you have on those bottlenecks easing, that will be great.

And then second, can you comment a bit on your share of electric cars in China? So zooming into China, how do you think about the powertrain mix in the region? We're seeing one of the competitors has a higher share of BEV -- quite a high share of BEV in China. Do you [ plan ] to increase the share of electric vehicles in your Chinese sales in the coming quarters or do you plan to keep it stable in 2024 versus 2023?

[Harald Wilhelm, executive]

Yes. On your first question, José, as just commented before, the sales or the volume impact in the first quarter, the most important in there was a product availability given the supply constraints and would again mention E-Class in terms of the -- given the unit sales being the most impacted area still in the first quarter.

On your side, you could see with the GLC availability that this is coming up, which gives us, I think, confidence that once the availability on E-Class is there that we also see this one improving in the quarter to come.

In terms of the EV share, as just commented, we follow customer demand. We're not pushing excessively the products here into the market. We want to protect the product substance. We also protect -- want to protect margin. And that's why I would say we rather see an EV share globally this year, which is rather stable at 19% to 21%. That also applies, I would say, for the market of the EVs in China.

But this is a very important point. Let me take the opportunity of your question to go beyond the quarter. We are in a situation right now where we do not have EV offerings in all important segments of the market. Here, I look very much into 2025 and then further into 2026 when MMA comes to market, which obviously will have a much larger -- much broader offering in terms of EV vehicles in the entry segment. And then I'm looking very much to electric C-Class and GLC 2026 to come to market, which obviously is the area where we see most of the EV growth in these days where given the life cycle evolution of EQC, which we commented in earlier in the call, we don't have a product offering at this juncture.

So that explains, I would say, why you see different dynamics also in terms of EV evolution between market participants. At our end, this is a function of product availability. And the products, which are to come, MMA and C-Class and GLC electric, we are very confident that they are going to meet customer expectations towards Mercedes products in the years 2025 and 2026. And therefore, we're going to build a curve on the EV share not only in China but also in the rest of the world with these products to come.

I think this is very important that we have a good understanding in terms of the product sequences. And here, there is really good stuff, and many of you have seen the products and I think share our belief that they are going to make a difference in the market.

[Steffen Hoffmann, executive]

Thanks, José. We continue with Philippe Houchois from Jefferies.

[Philippe Houchois, analyst]

My question is on R&D. There was a nice tailwind to the Q1 performance and I'm just trying to understand how much of that is seasonal weakness that will kind of normalize back? And also in the broader context, as we look at potentially the industry having to manage a longer transition to EVs than initially thought, to what extent there is a need to reinvest in the longer life span for ICE?

And also, as you know, many of us were in China last week, and we see that interest in plug-in hybrids in the U.S. and in China and the return or the expansion of the range extenders. And any thoughts that the need within the Mercedes portfolio to consider range extenders as, again, a longer transition into a world of BEV.

[Harald Wilhelm, executive]

Thanks, Philippe. Absolutely, you're right. On the plug-ins, I think they can play a very important role in many markets in terms of the transitioning. I would dare to say that probably we have the richest, the broadest, the most versatile, the most useful portfolio of plug-ins in the market with autonomy, with range of 100, 130 kilometers autonomy. So you can do basically most of the [ missions ] a week on a fully electric basis. But then once you need the range, you have the combustion engine to take you further.

We can see also in the quarter 1 that the plug-in share is at a bit higher level than in previous quarters. The products are there. So it's not that we need to invest R&D into it, they are ready to hit the street. So I think this is a jewel in the toolbox, which we can leverage. And we're happy if the market demand supports that not only China but in many other markets, U.S. as well, in the future as we go through this transitioning.

In terms of the investments for the EVs, let me be very clear: we do not slow down the investments on the EV side despite some doubts in terms of the pace of transitioning. We don't take a tactical approach here. No, we keep the strategic focus in terms of investing into the EV product. I commented before on MMA in 2025, on GLC and C-Class in 2026, but obviously, more stuff to come thereafter. So we stay full throttle on in terms of the investment on the EV side.

And also on the ICE side, we do a lot to keep the products at the cutting edge. In the quarter 1 bridge, I also said that we invest into measures to further improve cutting-edge technology and content in the vehicles, not only for new vehicles, but over the life cycle. So the ICE portfolio, which is in the market has a great future, and therefore, can support with healthy margins.

Overall, well, what you can see in the quarter 1, I would not take it times 4 in terms of full year R&D and investments. A bit of phasing, as always, on the R&D side. You can see a bit as well that we are prioritizing the investments. Not each and every idea being brought forward is being passed. So despite the focus on EV investments, on technology investments, software, MBOS, drivetrain. However, we prioritize and that's what you also see in the numbers. So with this, on the margin side but also on the cash flow side if you look into the first quarter. So these are, I think, the elements at work.

[Steffen Hoffmann, executive]

Thanks, Philippe. And the next gentleman in line is Henning Cosman from Barclays.

[Henning Cosman, analyst]

I had a couple of questions on pricing, please. Firstly, if you could remind us if in the net pricing, you include the residuals or the remarketing gains and the year-over-year change of that. And if you could remind us how this is trending and how you see this developing in the course of the year. If you could perhaps give us the million impact in the first quarter and how you see it trending in the course of the year?

And then the second part of the pricing question is if you could, again, help us reconcile the pricing and how it's holding up for you. And you said you'd see it holding up for yourself, and I'm always trying to reconcile that with the headline discounts that we're seeing in the market, not only in China but also in the U.S. where we get this third-party data. It doesn't seem to reconcile with the strong pricing that you're continuing to enjoy.

So if you could please help us understand, again, is this a function of list prices still improving for you and net-net, despite higher discount, that it's still stable? Or is there a part that the dealers are currently still digesting and how you think about the sustainability of that element? Or might you have to start adjusting a bit more of the discount yourself in the course of the year and into next year?

[Harald Wilhelm, executive]

Thanks, Henning. On the first question, with regard to the remarketing used car business, as we guided for in the full year guidance in February, we do see some softening on the used cars, which is included in the volume structure pricing bucket on the EBIT walk, however, not in the commentary on the pricing where we said pricing is stable So you can rather allocate that to structure or so.

In terms of what is the evolution in -- the expected evolution in 2024. So we ended 2023 with a pretty decent situation, I would say, in terms of the used car with remarketing results still being in the 4-digit territory -- in the low 4-digit territory, higher than what we initially thought. However, we do expect some softening, part of which we could see in the first quarter some further softening.

We do anticipate at this juncture for the remainder of the year, which should still leave us with a healthy 3 digit -- mid- to high 3-digit million remarketing result in the full year 2024. I hope that explains a bit the building blocks on that element.

In terms of your second question, the pricing dynamics, why are we seeing that? Pricing has been kept stable in the first quarter. Clearly, this is the sum of new pricing for vehicles to come to market. So the MSRP evolution, including year-on-year escalation update and the discount evolution on the other side. So we continued our Pillar 2 strategy, value over volume in terms of product positioning on the MSRP side. We used some flexibility here and there on commercial measures to stay tactically competitive. And the sum of the two is a net positive.

Let me say at the same time, however, as you guys obviously spot each and every movement and each and every discount the dealer is giving on an individual vehicle, we -- at the end of 2023 but also into quarter 1, we had some stock measures and stock clearances, so to say, cleansing, which has been done by dealers. And that yielded some higher-level discounts, I would say, in particular, on the EV side. And we look at that very carefully and then we take respective conclusions in terms of how much supply is healthy, how much supply can be digested or is demanded by customers in view of the stock at dealer, stock at our end, and then if need be, we do adjust.

So therefore, I do expect that some of these measures you did observe should not be with us for the remainder of the year.

On the ICE side, overall, the pricing is at a more comfortable level, at a healthier level than on the EV side.

[Steffen Hoffmann, executive]

Thanks, Henning. And we conclude the Q&A with Horst Schneider from Bank of America.

[Horst Schneider, analyst]

Can you hear me?

[Steffen Hoffmann, executive]

Loud and clear.

[Horst Schneider, analyst]

Okay. Excellent. I just have got some smaller items left in terms of questions. What I'm observing basically for a while is that your interest income gets pretty strong. So the run rate that we are seeing basically since Q4, can we extrapolate that now for the next few quarters for a kind of EUR 150 million positive net interest income?

The number two that I have is related to the bridge items, foreign exchange and also industrial performance. Harald, you said industrial performance is going to remain strong. So we can expect for the next few quarters that you see an even better number that you did in Q1, is that right?

And in terms of foreign exchange burden, is that something that will now carry through the year or that is something, which will peter out maybe in the next few quarters?

[Harald Wilhelm, executive]

Thanks, Horst. So the credit in terms of the improved interest rate results, I'm happy to pass it to Steffen managing that with his Treasury Head. But maybe not at EUR 150 million run rate a quarter, we'd take it slightly down, I would say. Maybe still in the 3-digit territory, but just at the beginning of it. He's nodding with his head so it suggests that is a close to true statement.

On the other items, FX, frankly, is a bit difficult, I would say, to predict. I'm not claiming to have a crystal ball in front of me in terms of the key currencies evolution. What we do observe, however, now since a while is the evolution of the Turkish lira. So maybe this is still constituting some headwind, which we try to offset on pricing side, it goes without saying.

Thanks to remind us on the industrial performance is. This is really the name of the game in terms of the effort of the teams in all areas in supply chain management. Try to materialize cash in the raw material evolution, which should be further beneficial.

As we go through the year, it is the effort of the teams to mitigate, minimize claims coming through the supply chain in terms of inflation claims or capacity-related claims. Here, I still see some further headwinds on these kind of one-off claims, but trying also to leverage commercial and technical efficiency in the supply chain. So an extra effort has been set up here by the purchasing teams to extract more value. Not necessarily saying cash out of the supply chain, but more value out of the supply chain.

So it's really a gigantic effort, which, all in all, on the material cost of the vehicles, of the products should provide us some further tailwind as we go through the year. But not limited to the supply chain. Obviously also in our operational field and environment, we talk a quite significant operational objectives in terms of further HPV evolution, efficiency gains, fixed cost reduction in operations to drive efficiencies through the factories and the whole company.

So altogether, these efforts in terms of efficiencies, be it supply chain, be it operations internally should provide us with a tailwind for the quarters to come.

[Steffen Hoffmann, executive]

Thank you, Horst. So ladies and gentlemen, thanks a lot for your questions, for being with us today. We know it's a busy day for you as well.

Also, thank you very much to Harald for answering the questions. As always, IR remains at your disposal to discuss further topics.

Have a great morning, great afternoon and great evening. Thank you very much, and goodbye.