Daimler AG (OTC:DDAIF) has enough cash and credit access to wait out uncertainties beyond an expected loss-making second quarter, but executives won’t predict the length or depth of the COVID-19 pandemic’s impact on the car and truck business.
The parent company of Daimler Trucks AG and its Daimler Trucks North America subsidiary said truck sales fell by 20% to 92,500 vehicles in the first quarter compared to 115,900 in the first quarter of 2019.
“The greater-than-planned volume drop in Q1 as an effect of COVID hit us hard,” Ola Källenius, Daimler chairman and CEO, told analysts on a conference call Wednesday. Commercial vehicle customers are canceling or delaying taking delivery on new trucks.
“It will be a difficult quarter in Q2, but I feel we have made the right decisions so far and are well placed to weather this storm,” Källenius said. “If revenues are going to remain depressed for a protracted period, we may need to intensify our efforts.”
Daimler cut spending across the board but remains committed to future technologies, including hydrogen fuel cells. Daimler plans to form a 50-50 joint venture company with rival Volvo AB (OTC: VLVLY) to develop large-scale fuel cell production for heavy-duty trucks and other uses.
First-quarter results
Daimler, also the parent of Mercedes-Benz cars and vans, sold 644,300 vehicles in the first three months of the year compared to 773,800 in the same period a year ago, the Stuttgart, Germany-based automaker said Wednesday,
First-quarter revenue was €37.2 billion ($40.4 billion) compared to €39.7 billion ($43.1 billion) a year ago. Net profit in the quarter was €168 million, 85% below the €2,149 million reported a year ago. Earnings before interest and taxes (EBIT) were €617 million, 78% below the €2,798 million in last year’s first quarter.
Adjusted industrial free cash flow was minus €1.9 billion in the quarter. Daimler expects that to continue in the current quarter, which ends June 30.
Daimler said last Thursday it expects 2020 unit sales, revenue and EBIT to trail 2019 levels. The company’s cash position grew to nearly €68 billion with a new €12 billion line of credit.
“Our financial flexibility mitigates risks and volatility through a balanced mix of funding instruments,” Chief Financial Officer Harald Wilhelm told analysts.
Nascent China recovery
Daimler is seeing strong demand in China, where it has slowly restarted production following the easing of the county’s lockdown. Supply chains are “remarkably robust,” Källenius said.
“If the markets turn back up again, we are ready to ramp up and capture opportunities,” he said. “I don’t want to be overly confident, but if and when it comes, we’re ready to go.”
Daimler’s manufacturing flexibility allows it to adjust from a single shift to two and ultimately three shifts as needed. The Chinese workforce is showing great adaptability in handling distancing, mask-wearing and other worker protection requirements.
“It is a little bit different than what you’re used to, where you didn’t have any restrictions, but what we can see from China so far is remarkable,” Källenius said. “That’s why I don’t see it as a big threat against our ability to produce the volume that we need this year.”