Daimler AG DDAIF US OTC Olivier Fontenelle 10/30/2013
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Main Business Lines
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Key future success drivers Significant product launches Recent
revenue and profit growth New China strategy Positive macro
environment Turnaround story
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Recent Results September sales were all time highs: 142,994
vehicles WW Driven by sales of E-Class, A-Class and CLA-Class 5%
YoY increase in Q3 revenues 53% YoY rise in Q3 profits
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New Products Automotive industry is highly cyclical, the
development schedule drives sales. MB is in the middle of a huge
product refresh, with highly competitive vehicles. GLA Small cross-
over CLA Driving US sales S Class 30,000 in 3 months C Class All
new model
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CLA and GLA Both based on new small compact platform, shared
with A and B class. 90% YoY WW increase for the class. CLA -
$29,900 starting price, the first car >30k for MB. Audi A3 was
pricing reactionary, matching CLA. GLA small crossover to take on
high volume market Competing with BMW X1, Audi Q3, Range Rover
Evoque Gen Y appeal
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S-Class Top of the line model, highest profit margins Extremely
positive industry reviews 30,000 sales in 3 months! 2012 sales of
only 65,000 cars. Expected to be #1 in class by a wide margin.
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Problems in China Mercedes-Benz has struggled in China since
the start of 2012, when overall demand for luxury cars began
weakening amid an economic slowdown in the world's second-largest
economy that affected luxury car brands in general. Mercedes fared
worse than most because of a dearth of new or redesigned models and
what industry insiders and key operators of Mercedes-Benz dealers
described as a short-sighted volume grab that hit the brand's
profitability. Mercedes-Benz's sales rose just 4 percent to 206,150
cars, last year. By contrast, sales of Audi cars rose 32 percent to
407,738 cars, while BMW's volume increased 41 percent to 313,638
cars.
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New China Strategy Goal: Boost sales to 300,000/annually by
2015 How? $2+ billion investment in China-based manufacturing: 70%
cars sold in China to be made in China by 2015. (cost reduction)
Includes GLA By comparison, Audi builds 90% cars it sells in China,
in China. 12% equity investment in BAIC -> planned IPO Doubling
dealer network from 100 to 200.
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Integrated Sales Strategy
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The macro-environment European economy is rebounding, and care
sales are following. The situation is clearly improving, Carlos Da
Silva, a Paris-based analyst with IHS Automotive, said in an e-
mail. Europe is not in brilliant shape, yet the underlying trend of
the market is calling for a certain dose of optimism. Investor
confidence in Germany, Europe's biggest economy and largest car
market, rose to a three-year high this month. Consumer confidence
in the UK, which ranks second in the region's car sales, was at a
six-year high in September.
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Chinese Market >10% Growth YoY
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MB International Exposure Strong growth in UK (+28%), Turkey
(+31%), Russia (+20%), China (+26%) Still #1 in Germany with 9%
market share. #1 in Japan (+32%)
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Why not other automakers? Mercedes is coming back from the
bottom. They: - Had declining sales - Had the lowest profit margins
of the major luxury brands. - Lost the ultra-luxury war (RIP
Maybach). - Declining quality perception. - Missed the boat on
China, especially to Audi. - Not been #1 since 1999 - Currently
beating BMW by ~2500 cars in the US. #3 Lexus by 25,000
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Important Indicators Q3 Sales MB Cars: up 14%, Trucks: up 4%,
Vans: up 17%, Buses: 17% Profit Margins: Q1 2013 Profit Margin:
3.4% (one time costs included) Q2 2013 Profit Margin: 6.6% Q3 2013
Profit Margin: 7.3% Long-term target: 9-10% Audi/BMW ~ 10%+ EBIT
YoY growth of 15%
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Momentum Trade
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Financial Indicators and Proposal TTM P/E: 10.16 Forward P/E:
14.76 PEG: 10.58 Proposal: ~$3000 or 37 shares *OTC Trade poses
little/no risk thanks to the high liquidity of DDAIF
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Risks China is very competitive. They could flounder their new
strategy and not catch up with Audi and BMW. Global macroeconomy is
still not stable, especially in Europe. China poses macroeconomic
risk. New entry-level products could erode short term profit
margins more than expected, and will not be offset by sales volume.
Truck demand could decrease due to weak heavy industry demand.
India is down >10% YoY, and Russia is missing forecasts in this
business unit.