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12 April 2021

A Greener Drive with Electric Results

The electrification of transport plays an essential role in the push towards a greener planet, with road travel accounting for around 15% of total global CO2 emissions. With passenger and freight vehicles contributing 45.1%  and 29.4%, respectively to the global CO2 emissions from transport, it is essential that vehicle manufacturers such as Daimler develop their products to be more environmentally friendly.

There has been an increased level of interest from investors when it comes to companies displaying their ability to adapt to greener operations. The share prices of such companies have benefitted from the implementation of emission reducing measures, as well as the overarching theme of Environmental, Social and Governance (ESG) being of great focus within the when it comes to investment professionals deciding how to allocate their clients’ assets.

In particular, the automotive industry experienced a considerable shift in how the companies should operate, which has been accelerated by a few disruptive car manufacturers that prioritise environmental impact in the development of their vehicles, such as Tesla and Nio. As a result of this, rapidly increasing competition with potential customers being attracted to the performance and image of these green cars, for the sake of pure survival it is essential that the legacy car companies follow suit to some degree.

Moving on to Daimler in particular, more commonly known by its ownership of Mercedes Benz, the company has laid out its strategy to become a more environmentally-friendly manufacturer in the wake of these greener market preferences. Essentially, across Daimler’s product range from small commuter cars to heavy duty haulage trucks, they aim for the shift to electricity. Daimler explained its successful ability to survive through the pandemic, via mainly cost cutting methods and, as such, can now focus on the growth of the company. Mercedes Benz’s car business is to expand its fully electric vehicle selection considerably in the coming year, with the smaller electric model EQA to be first, followed by the EQS which is to boast an impressive electrical range of 770km, with the EQB and EQE set to release later this year. Daimler Trucks and Buses is also set to focus on the carbon neutrality of its passenger and freight transport vehicles, with fuel cell truck production to begin after 2025.

The financial performance of Daimler remained healthy, despite the company displaying a fall of 15% in car unit sales during the COVID-19 pandemic. This is shown by its healthy increase in net profit from €2.7bn in 2019, to €4bn for the year 2020, which allowed the group to maintain its long-term dividend policy and increased pay-outs for another year from €0.90 per share to €1.35 per share. Mercedes Benz is seeming positive over its profitability from the first quarter of 2021, which has been catalysed by demand from the Chinese markets, along with strong cost management capabilities and pricing strategies.

However, a question mark around the company and brand name still remained. In the company’s AGM, the group’s directors announced a considerable potential change to the company. Passenger vehicle companies such as Mercedes Benz have a much stronger brand image with the consumer, and the progression of electrifying passenger vehicles is much faster than the horizon for the truck manufacturing divisions of the group. Because of these reasons, the company is proposing to spin-off Daimler Trucks as a separate company, as well as rebranding the remaining group as Mercedes Benz. The rationale behind these changes is to appeal to more investors as a progressive car manufacturing company that is cutting off the environmentally-lagging divisions to focus on growth and electrical innovation.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
A Greener Drive with Electric Results
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