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Mercedes gets its first downgrade of 2024 as BofA turns bearish

The Mercedes Benz logo is pictured in Berlin, Germany, June 25, 2021. (AP Photo/Michael Sohn)

(Bloomberg) -- Mercedes-Benz Group AG has been handed its first downgrade of the year, with Bank of America Corp. predicting the German carmaker’s ageing line-up of auto models to weigh on its sales.

Mercedes shares dropped as much as 3.6% Tuesday, after analyst Horst Schneider cut his rating to underperform from neutral. The shares traded around €63 as of 2 p.m. in Frankfurt, just above Schneider’s €60 price target — a joint Street-low, according to data compiled by Bloomberg.

Schneider — who now holds one of only three sell-equivalent ratings on Mercedes of the analysts tracked by Bloomberg — said the downgrade was motivated by concerns over the carmaker’s fleet. Its average age of 3.8 years is likely to rise to 4.8 years in 2026, contrasting with Volkswagen where the average fleet age is set to decline, he said.

“Mercedes, by 2026, will have the oldest model line-up amongst the three German premium original equipment manufacturers, implying the company may have to support its volumes via higher price discounts,” he added.

Mercedes Shares Come Close to Giving Up 2024's Gains (Bloomberg)

Mercedes shares have now fallen about 18% from their April peak, as the European auto sector battles headwinds such as waning EV demand and a tariff spat with China.

So far, an overwhelming majority of analysts tracked by Bloomberg are bullish on the stock, with 20 of them still rating it buy. But caution is growing, with Citigroup’s Harald Hendrikse — who has a neutral score on Mercedes — flagging risks around Chinese demand as well as the need for “higher-for-longer” spending on internal combustion engine vehicles.

Hendrikse reduced his price target on the stock to €68 from €72, adding he saw few positive catalysts.

Meanwhile HSBC’s Michael Tyndall still rates Mercedes a buy, expecting profitability to gradually improve. But in a note on Wednesday, he warned it’s too early to call the trough for European autos.

“Admittedly, 2024 is a transition year for Mercedes with limited launch momentum,” Tyndall added.

--With assistance from Isolde MacDonogh.

©2024 Bloomberg L.P.