Mercedes-Benz: Upgrading Economic Moat Rating to Narrow From None, FVE Up EUR 5 to EUR 116

After reviewing Mercedes-Benz’s MBG economic moat, we have upgraded our rating to narrow from none based on the strength of the brand and the firm’s intellectual property, both within the intangible asset moat source. We have been monitoring the development of the firm’s ROICs since the spinoff of Daimler trucks on Dec. 1, 2021, which is much more capital intensive than the light-vehicle business. We raised our fair value estimate to EUR 116 from EUR 111 with EUR 3 of the increase coming from the time value of money and EUR 2 coming from changes to our model to reflect our narrow moat rating. The 5-star shares of Mercedes-Benz currently trade at a compelling 44% discount to our new fair value.

We think the brand’s strength is evident in its position in the top 10 of all (not just automotive) global brands according to Interbrand. While Porsche and BMW dominate the top five appearances in the J.D. Power APEAL study since 2003 (Porsche 21, BMW 17), Mercedes was fourth at 11 behind third place Jaguar at 12. While Mercedes does not have Formula One notoriety like Ferrari, the firm uses the venue to develop intellectual property for its road cars. Mercedes and McLaren are tied for third at eight in total number of constructors titles, behind number one Ferrari with 16 and number two Williams at nine. Even so, Mercedes won those eight titles eight years in row from 2014 to 2021, the longest winning streak in F1 history.

The AutomotiveINNOVATIONS awards, presented annually since 2012 by PricewaterhouseCoopers and the Center for Automotive Management, surveys and evaluates vehicle technologies using quantitative and qualitative criteria. In 2023, Mercedes won four awards, including Most Innovative Premium Brand, Most Innovative Model (EQE BEV), Most Innovative Premium Brand—Electric Mobility, and Most Innovative Premium Brand—Interface and Connectivity. In 2015, Mercedes won Most Innovative Brand of the Last Decade with 578 individual innovations and 183 world firsts.