Daimler Crushed Earnings Expectations. Expect the Same From These Auto Makers.

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Sales in China helped

Daimler

to a strong start in 2021, firmly beating analyst expectations across multiple measures for the first quarter and setting the tone for positive results from other automobile makers.

Shares in

Daimler

climbed 3% higher in Frankfurt trading on Friday.

The back story. Daimler is in the midst of a massive transformation. Earlier this year, the company announced plans to spin off its trucks and buses unit—which contributes to more than 15% of earnings—and rename itself Mercedes-Benz, the group’s flagship luxury brand. Daimler’s focus on premium cars is intended to boost profits, because margins are wider at the upper end of the auto industry.

This shift is occurring as the global automotive industry undergoes a sea change to face a future defined by electric vehicles. Mercedes-Benz has ambitious plans to dominate the luxury end of the segment, and this week revealed the EQS, its full-size electric luxury sedan to rival electric-car maker

Tesla’s

Model S Plaid. The EQS was dubbed a “Tesla fighter” by analysts at Deutsche Bank, who said the car has the potential to improve the perception of the entire brand and lift the stock price.

More immediate pressure on the industry comes from the global shortage of semiconductors, which are components in critical systems from power steering to parking sensors. On Thursday, analysts at

UBS

said auto makers “will likely capitalize on their newly gained pricing power” from strong demand set against low inventories and production bottlenecks, and raised target prices for U.S. and German auto stocks.

Plus:This New Mercedes ‘Tesla Fighter’ Could Be Game Changing, Says Deutsche Bank

What’s new. Daimler pre-announced results for the first quarter of 2021 on Friday, ahead of the scheduled earnings release on Apr. 23. The group said sales momentum across all major regions, but especially China, supported strong product mix and pricing.

The results significantly outpaced analysts’ consensus expectations across most measures, including free cash flow and liquidity. Adjusted earnings before interest and taxes (Ebit) —a figure closely watched by analysts—was €4.97 billion ($5.96 billion) across the group, almost €1 billion more than forecast. Adjusted Ebit of €3.8 billion at Mercedes-Benz alone was around €800 million more than expected. Daimler Trucks and Buses, and the group’s Mobility division, also beat earnings expectations.

“We continue to execute on our ambitions in a very encouraging market environment,” said
Ola Källenius,
the chair of the board of management at Daimler and its Mercedes-Benz division. “The launch of the EQS is just the start. Our systematic efforts to lower the break-even point of the company are becoming increasingly visible.”

Also read:Daimler to Split Into Two Companies and List Truck Unit. The Stock Is Surging.

Looking ahead. There are many reasons to be bullish on Daimler stock, and the narrative of the new Mercedes-Benz EQS being a key rival to luxury Teslas is a good one. But more immediately, tailwinds are likely to come from strong pricing in the luxury segment amid increased demand—and on this basis UBS raised the target price on Daimler stock by 42% on Thursday to €78. However, after today’s rally, the shares are trading close to that price, and UBS said that there may be some profit-taking to come.

More broadly, Daimler’s blowout earnings set the stage for impressive results from other auto makers, especially German peers

Volkswagen

and

BMW,

and UBS analysts aren’t ruling out more pre-releases in the days ahead.

As part of a review of the sector this week in light of strong demand and supply constraints, UBS analysts issued upgrades of more than 30% to Q1 earnings-per-share forecasts at BMW and

Ford.

The Swiss bank also hiked the target price for BMW stock by 31%,

Ford

by 44%, and

General Motors

by 50%.