May 27, 2022

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Half the Automotive

Why Investors Should Never Count Daimler, Benz and Maybach Out Of The Race

This article was written exclusively for Investing.com

While there are vehicles, along with automotive companies, still going strong that are named after these three men—Gottlieb Daimler, Wilhelm Maybach and Karl Benz—each is all long-departed. Yet their signature accomplishments, creating a 3-wheeled automobile powered by a gasoline-powered internal combustion engine (Benz) and the four-wheeled, four-stroke auto that quickly followed (Daimler and Maybach) continue thriving today.

The clearest lineage from these original thinkers resides today in the Daimler Group (OTC:).

DDAIF Weekly TTM

Daimler currently is comprised of both Mercedes-Benz Cars & Vans, one of the clear leaders in the premium automobile segment, and Daimler Trucks & Buses, probably the world’s largest manufacturer of commercial vehicles.

Headquartered in Germany, the company spends a great deal of time and typesetting discussing their green credentials. They have to; that keeps the greens and the various governments at bay. 

But their real focus is still on innovative technologies and on the most luxurious and enjoyable of driving experiences, from ICE (Internal Combustion Engine) all the way to BEVs (100% Battery Electric Vehicles). I will stress their automotive division in this article because as of Friday, July 30, 2021, the company’s management and the Supervisory Board of Daimler AG approved the spin-off of  Daimler Truck by the end of this year.

When this happens, shareholders of Daimler AG (DE:) will also hold a 65% stake in the new Daimler Truck Holding AG, which will then be listed on the stock exchange as an independent company. (Daimler shareholders will get one share of Daimler Truck Holding AG, for every two shares they hold in Daimler AG. Daimler itself will retain a minority interest of 35% in Daimler Truck Holding AG).

According to an Interbrand-Study report in October 2020, Mercedes-Benz was declared the world’s most valuable luxury automotive brand, along with direct affiliates Mercedes-AMG, Mercedes-Maybach, and Mercedes-EQ.

I have read numerous articles lately denigrating Daimler management and noting that their fundamental value numbers are not as good as some of their competitors.  While there are others with higher profit margins (currently) and still others with a more favorable share value (currently) having more years of experience making and selling the highest-rated luxury automobiles at any price point, the others do not have the cachet of Mercedes.

Barring any pullback in consumer spending because of the Delta or some other, newer COVID-19 variant, Daimler will benefit from the speedy recovery in its home market of the European Union. Indeed, data now is approaching record levels never seen before.  Daimler’s is once again growing in double digits and free cash flow has surged to €1.8 billion (US$2.14 billion). In addition, the company is generating record sales in China.

The recent S-class and Electric S-class launches have also been quite successful. (Daimler is planning to have 50% of their cars be either hybrid or electric by 2030…Just in case you thought Mercedes was only for your parents!) Demographics are on their side. 

The high net worth universe is expected to grow at a significantly higher-than-normal percentage in the coming months and years, outpacing recent growth in that category. Daimler’s reputation for quality is unsurpassed and its typical high-net-worth buyer tends to be fiercely loyal. 

Mercedes drivers also tend to be active drivers who like the driving experience. (Unlike the “drivers” that would seem to prefer to want only to get from point A to point B while playing video games the entire route?)

There will always be a market for drivers who want to drive, be it ICE, PHEV, or BEV, and do so in a level of luxury. Recent results, achieved during the alleged “takeover by Tesla (NASDAQ:)” certainly bear this out:

Daimler Q2 Results 2021

Daimler Q2 Results 2021

Source: Daimler website

Daimler Key Figures

Source: Daimler Roadshow investor presentation Q2 2021

I don’t want to give short shrift to Daimler’s truck and bus business—as the world’s largest purveyor of these vehicles, there is a whole ‘nuther business here with a number of powerful and well-known names. I also know, however, that most shareholders do not keep most spinoffs. If history is any guide, most will sell the spinoff and keep the primary shares.

With that in mind, I think these last two slides from Daimler’s Q2 2021 Roadshow investor presentation sum up what I expect from Daimler automobiles, as they spin off the truck and bus business, this year and going forward:

In a future article I plan to solely discuss the Mercedes approach to the EV—electric vehicle—transformation.

Important Disclosure: Unless you are a client of my firm, Stanford Wealth Management, I do not know your personal financial situation. Therefore, I offer my opinions above for your due diligence and not as advice to buy or sell specific securities.