Mercedes-Benz €2 billion assets under threat in Russia

15 March 2022

Luxury carmaker Mercedes-Benz has raised further concerns over the Russian invasion of Ukraine. This follows President Vladimir Putin’s endorsement of a plan to nationalise foreign businesses that aim to leave the country in the wake of the attack.  

In its annual report, the German carmaker said its Russian subsidiaries had total assets of €2 billion, which could now be threatened by proposals to nationalise the property of foreign firms fleeing the country. It warned that the war in Ukraine will pose far-reaching risks for the company, impacting unit sales, production processes, procurement, and logistics through supply-chain disruptions.

Higher risks

Mercedes-Benz cautioned against bottlenecks for components as well as critical raw materials, with the manufacturer not even ruling out cyber risks. It added that collaboration with partners and cooperative ventures were also subject to higher threats.

‘The effects on our business development in the year 2022 and on the related key figures cannot be quantified at present,’ the company said. On 2 March 2022, the Mercedes-Benz Group discontinued the export of cars and vans to Russia, as well as halting local production in the country until further notice. This will likely affect the company’s profitability, cash flows and financial position in 2022.

‘In the Mercedes-Benz mobility segment, negative effects may result from sanctions and a weaker economic environment for our customers in Russia and other markets, which may be reflected in increased payment arrears and credit defaults,’ the carmaker said.

Like other automotive manufacturers, it is constantly monitoring the situation to plan for possible scenarios relating to the current geopolitical situation. ‘There is a large degree of uncertainty connected with the premises regarding the economic situation and the development of automotive markets,’ it added.

It said that higher risks may also arise from the insolvency of subsidiaries, something that would be exacerbated by Putin’s plans to seize the assets of Western companies pulling out of the country.

Impact on car production

Russia’s plan to take control of these assets is part of the country’s strategy to push back against sanctions imposed by the EU, the US and other countries condemning the invasion of Ukraine. The Russian economic ministry said it could take temporary control of businesses leaving the country, where foreign ownership exceeds 25%.

Mercedes-Benz said its Russian units have liabilities to banks of €1 billion, for which it has issued a global guarantee. The carmaker has a plant in central Russia’s Moscovia region, where it has invested more than €250 million. Production at the car-manufacturing site, which opened in 2019, focused on the Mercedes-Benz E-Class sedan and SUVs.

The association of the German Automotive Industry (VDA) said that German manufacturers exported 35,600 cars to Russia in 2021. Within Russia, German OEMs produced 170,000 cars in 2021, most of which were also sold there. The market share of German manufacturers in the country is almost 20%.

‘Manufacturers and suppliers are working flat out to compensate for the failures and disruptions in the supply chains and to ramp up alternatives. Continuing production at alternative locations is in the interest of customers, employees, companies and a strong business location in Germany and Europe,’ the VDA said.