Mercedes-Benz flags supply risks as West Asian tensions persist

German premium automaker Mercedes-Benz warned Wednesday that a drawn-out conflict in the Middle East could cause shortages of key inputs as it reported tumbling quarterly profits due to fierce Chinese competition.

Traffic in the Strait of Hormuz has slowed to a trickle as Iran and the United States maintain competing blockades, restricting global supplies of energy and raising the cost of smelting industrial metals like aluminium.

Oil is also a key input for plastics and other petrochemical products.

"We're continuously monitoring (the war) and analysing the implications for the supply chain," Mercedes finance chief Harald Wilhelm told reporters on a call.

"If it were to last longer, you could not rule out the possibility of shortages in certain areas, whether of energy or certain commodities that are heavily sourced from the region."

Mercedes said net profit for January to March fell 17 percent from the previous year to 1.43 billion euros ($1.67 billion), hit by difficulties in China.

Stiffer competition in the country, long a steady source of profits for German carmakers, has hurt Mercedes and fellow German automakers.

"We take Chinese competition very, very seriously," Wilhelm said.

"The vehicles, the technology, the packaging -- and of course the price. To be clear, you get an incredible amount of value for very little money."

China challenge

Mercedes said its car sales fell 27 percent by volume in the first quarter in China, even as they grew in Europe and North America.

The firm's China sales were last year already at their lowest level since 2016, as it faces competition from local brands like BYD and Geely, particularly for sales of EVs.

Speaking to reporters after the results were released, Wilhelm said Mercedes was bracing for Chinese competitors to try and export their way out of tough conditions in their home market.

Chinese brands including Chery, Geely and Xpeng had a nine percent share of Europe's car market in March according to automotive intelligence firm Dataforce, up from virtually nothing just three years ago.

"We must assume that these vehicles from local manufacturers in China will also find their way onto the export market," Wilhelm said, adding that Mercedes needed to stay active in China to be at the cutting-edge.

"If one were to withdraw, so to speak, and say, 'I'll sit this one out', we might escape today but tomorrow we'd almost certainly come face to face with it," he added.

“And then we'd have a very big problem."

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