The Mercedes Benz Group (XETR: MBG), one of the most popular and loved automotive brands in the world, is ramping up its presence in the field of all-electric, emission-free automobile production. The German automotive brand aims to firmly establish its leading position in the “all-electric light commercial vehicles” space, and it’s all about Electro-Mobility.
Global Energy Shift
With the global energy supply crisis aggravated by the ongoing war between Russia and Ukraine and rising fuel costs, consumers may soon migrate towards electric vehicles to mitigate excessive fuel and transport expenses. As the world becomes more and more environmentally conscious, the move towards vehicle and transport electrification seems inevitable, judging by electric vehicle (EV) sales. EV sales doubled in 2021 from 2019 to a new record of over 6 million, with a 75% increase over the first stint of 2022 compared to last year.
The Top 3 German automaker’s share prices have remained under pressure throughout 2022 as they progress to a “Greener” future, as seen in the chart below. BMW (light blue), Mercedes (dark blue), and Volkswagen have been in the red over the last year by over -4%, -12%, and -36%, respectively.
Technicals
Looking closer at the price action of the Mercedes Benz Group on the longer-term weekly chart, we can see the formation of a classic head and shoulders (H&S)price pattern. The price pattern will be invalidated if the price action moves above the right shoulder level, which is currently acting as resistance to the price of around €68.00 a share. If this level is crossed with positive momentum, we could expect the next significant resistance to be targeted at approximately €76.49 a share.
For the bear case, we might see lower prices which could be more attractive to long-term investors as weaker sector fundamentals start to filter through. The H&S neckline (NL) could be the first test lower at €55.71 before the major base breakout zone around the €49.91 level is possibly targeted.
Fundamentals
In a recent announcement, Mercedes has reported plans to reorganize its European production network to accommodate its journey towards electro-mobility. Mercedes is investing in a new project, VAN.EA, in Jawor, Poland, is a state-of-the-art all-electric van architecture program where large all-electric vans will be produced. With a consistent and primary focus on producing all-electric vans, Mercedes aims to use this new investment to gain a competitive advantage over industry participants. This investment is further incentivized by a ‘major industry-wide shift towards electrification.
Looking at the latest earnings report, Mercedes’s revenue from continuing operations benefitted from a healthy 10% year-on-year rise from 2020 to 2021. Income from continuing operations increased from €121.8 billion in 2020 to €133.9 billion in 2021, a significant year-on-year rise, mainly due to the much-improved sales structure within the Group.
The 2021 net profit figure of €23.4 billion is significantly higher than the prior-year figure of €4 billion. The 2021 net profit figure represents a 485% increase from the 2020 figure. Both basic and diluted earnings per share increased from €3.39 in 2020 to €21.50 in 2021. This represents a 534% year-on-year rise.
Summary
The EV market is not without its fair share of headwinds as minimal supply constraints loom and the resilience of battery supply chains remains under pressure. These factors could see lower price levels at €55.71 and €49.91, possibly targeted. A possible long position could exist from here, but the €68.00 resistance needs to be crossed for possible higher share levels.
Sources: Mercedes Benz Group, International Energy Agency (IEA), ENCA, Automotive World, TradingView.
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