Daimler warned investors on Sunday evening that second-quarter earnings will take a “high three-digit-million” hit as the Stuttgart-based parent of Mercedes-Benz will have to shoulder a higher than anticipated financial fallout of alleged manipulations of diesel emissions.

The provisions will dent the carmaker’s operating profit for the full year. In the third profit warning since 2018, the Daimler warned shareholders that it now expects earnings before interest and taxes to be similar to last year’s level of €11.1bn, compared with the previous guidance of a “slightly higher” EBIT.

The new outlook is €500m below the current analyst consensus expectation for 2019 according to data by S&P Global Market Intelligence. Last year, operating profits suffered a 22 per cent drop from €14.3bn in 2017.

The profit warning comes at a highly politically sensitive moment as new Daimler chief executive Ola Källenius and the bosses of his German rivals will meet Chancellor Angela Merkel and other senior politicians on Monday in Berlin to discuss the future of the German car industry and the transition to electric vehicles.

“Relevant for the reassessment is an increase in expected expenses in connection with various ongoing governmental proceedings and measures with regard to Mercedes-Benz diesel vehicles,” Daimler said.

Germany’s transportation ministry announced on Saturday that Daimler must recall 60,000 Mercedes diesel cars in Germany. The authorities concluded that the vehicles are equipped with software designed to manipulate emissions tests. Tests revealed that the vehicles only comply with emissions limits when a certain function is activated.

The affected model is the Mercedes-Benz GLK 220 produced between 2012 and 2015. The government’s investigation will be expanded into more models that use the same engines.

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Daimler had already recalled 3m vehicles to rectify excess emissions coming from their diesel engines.

Daimler confirmed the latest recall order, adding that it continues to co-operate with regulators but will appeal against the recall decision because it considers the emissions control systems legal.

Daimler also warned on Sunday evening that its vans division will be lossmaking this year, forecasting a negative operating margin of between minus 2 and minus 4 per cent, against 2.3 per cent in 2018 and a previous 2019 guidance of 0-2 per cent.

Daimler warned investors last October of the “very challenging environment” facing the automotive industry. First-quarter operating profit was 16 per cent lower at €2.8bn, compared to €3.3bn a year earlier as the company suffered falling sales in China and flat markets in the Europe and the US. While ahead of analyst expectations, Daimler’s then-chief executive Dieter Zetsche said the company was not satisfied with its performance.

Mr Zetsche nonetheless reaffirmed the 2019 targets. “Based on our sales planning and the countermeasures we have already initiated, we are confident that we will achieve those targets,” he said. Mr Zetsche retired at the annual shareholder meeting in May and has been succeeded by Mr Källenius, who previously oversaw group Research and Mercedes-Benz Cars Development.

Via Financial Times