Mercedes-Benz, a luxury carmaker, reported a decline in third-quarter earnings, citing challenges in the electric vehicle (EV) market. The company stated that heavy price cuts and supply chain issues have created a "brutal" environment, potentially impacting its adjusted return on sales forecast for the cars division. The CFO expressed concerns about the sustainability of the current status quo and emphasized the need for higher returns from the combustion engine portfolio if EV margins remained lower than anticipated.

The market for EVs has become intensely competitive, with some traditional players offering battery electric vehicles at prices below those of internal combustion engine cars, despite the higher production costs. Mercedes-Benz acknowledged the tough competition and mentioned the possibility of bolstering earnings through stronger returns from their combustion engine vehicles if EV margins continue to remain low.

The company aims to remain committed to its EV targets; however, it is prepared to explore alternative strategies to enhance profitability. While Mercedes-Benz has generally resisted price cuts to focus on boosting margins over volume, it mentioned that recent discounts offered in Germany during the fourth quarter did not signify a shift in its pricing strategy.

The impact of this news was reflected in the stock market with Mercedes-Benz shares tumbling more than 6% to reach their lowest point in nearly a year. The declining shares were the biggest fallers on the euro zone blue-chip index. Similarly, BMW and VW experienced drops of 4% and over 2%, respectively.

The reduction in third-quarter earnings for Mercedes-Benz was evident across the group, with an overall decrease of 6.8% in earnings before interest and taxes (EBIT) to reach 4.8 billion euros ($5.1 billion). However, the company saw a positive increase in earnings from vans, with a jump of 44% to 715 million euros and an adjusted return on sales of 15%.

Mercedes-Benz described the market environment as "subdued" and acknowledged the challenges posed by inflation and energy pricing. The company believes that it has surpassed the worst of these challenges but expressed caution due to higher inflation, foreign exchange headwinds, and supply chain-related costs, which affected third-quarter earnings.

Looking ahead, Mercedes-Benz expects the sales rate in the fourth quarter to remain consistent with that of the first three quarters. The company has not adjusted its full-year sales target, maintaining the goal of achieving no year-on-year change.

In conclusion, Mercedes-Benz finds itself navigating a challenging landscape in the EV market, as evidenced by the decline in Q3 earnings. However, the luxury carmaker remains committed to its EV targets while considering alternative strategies to improve profitability in the face of fierce competition and supply chain issues.