How Mercedes-benz Group Wacc Reveals Hidden Value in Stocks
Mercedes-Benz Group WACC reveals something most investors miss when they see the stock trading at a P/E of 6x and a P/B below 1.0. A low valuation multiple is not the same as hidden value. The key question is whether the business earns above the rate its capital providers demand. For Mercedes, the answer in 2024 and 2025 is no longer as clear as it was in 2021 and 2022. The WACC analysis exposes the tension between a historically cheap-looking stock and a structurally challenged return profile.
This case study uses Mercedes-Benz Group as a real-world example of how WACC, invested capital, and the ROIC-spread concept combine to separate genuine undervaluation from a value trap.
Key Takeaways
- Mercedes-Benz Group WACC sits in the 7.7-9.0% range depending on how you handle the financial services division and which beta estimate you use.
- ROIC in the industrial segment fell from 28.1% in 2022 to an estimated 8.2% in 2024, compressing the value-creating spread to near zero.
- A business earning at or below WACC is not worth book value, regardless of what the P/B multiple implies.
- The EV transition has raised Mercedes's invested capital base faster than revenues have grown, mechanically suppressing ROIC.
- If ROIC recovers to 12-15% by 2027, the stock has real upside from current levels. If it does not, the low P/B is a fair price for stagnating returns.
- The WACC framework is the most direct way to decide which scenario to underwrite.
The ROIC Peak and the Current Reality
Between 2021 and 2022, Mercedes-Benz Group posted some of the best return metrics in its history. Supply constraints eliminated discounts. Luxury demand stayed firm. ROIC in the industrial segment crossed 22% in 2021 and reached 28% in 2022.
Those numbers were not normal. They reflected pandemic-era pricing power that no analyst expected to persist. The normalization since then has been sharp.
| Year | Revenue (EUR bn) | EBIT Margin | Industrial ROIC |
|---|---|---|---|
| 2021 | 133.1 | 12.7% | 22.4% |
| 2022 | 150.0 | 14.6% | 28.1% |
| 2023 | 153.2 | 12.6% | 14.8% |
| 2024E | 147.5 | 9.8% | 8.2% |
| 2025E | 143.0 | 9.2% | 7.5% |
By 2024, ROIC had fallen to near the estimated WACC of 7.7%. The spread that creates shareholder value had effectively closed.
How Mercedes-Benz Group WACC Is Constructed
The WACC for Mercedes differs from a pure industrial company because of Mercedes Financial Services, the captive lending arm that funds customer and dealer financing in over 35 countries.
For the industrial operations alone, the WACC runs approximately 7.7-8.0%:
- Cost of equity: 9.1% (risk-free rate of 2.5% + beta of 1.20 x ERP of 5.5%)
- After-tax cost of debt: 2.3% (3.2% pretax cost x (1 - 0.28 tax rate))
- Target capital structure: 80% equity, 20% debt
- WACC: (0.80 x 9.1%) + (0.20 x 2.3%) = 7.74%
When you include the financial services division's match-funded debt in the capital structure, the blended WACC rises toward 8.5-9.0%. This is because financial services liabilities carry a higher funding cost than pure investment-grade industrial bonds, and they represent a large share of total group liabilities.
The practical implication: if you run a DCF on Mercedes as a whole company without separating the two segments, your WACC will be wrong by design.
Why Low P/E and Low P/B Do Not Guarantee Value
Mercedes traded below 7x trailing earnings and 0.7x book for much of 2024. That looks cheap by almost any screening metric. The problem is what those multiples assume.
A P/B of 0.7 says the market values Mercedes's assets at 70 cents on the book dollar. For this to represent undervaluation rather than fair pricing, the business needs to earn returns above the cost of capital on that asset base. If ROIC equals WACC, fair value is exactly book value. If ROIC falls below WACC, fair value is below book.
Compare Mercedes to Berkshire Hathaway (BRK.B), which trades at 1.5x book with a P/E near 9.8 and an ROIC of 10.2%. Berkshire's premium to book is justified by the persistent positive spread between what the business earns and what its capital costs. Mercedes's discount to book reflects the opposite: the market's uncertainty about whether that spread will return.
Apple (AAPL) sits at the extreme end. With ROIC of 45.1% and a WACC near 10%, the spread is 35 points. The market prices AAPL at a P/E of 28.3 because that spread is durable and wide. The P/E premium versus Mercedes reflects the quality gap, not irrational exuberance.
The EV Transition and Invested Capital Growth
One reason Mercedes's ROIC is under pressure is structural. The company committed approximately 40 billion euros in EV and technology investment through 2025. Most of that capital flows into fixed assets and capitalized development costs before the corresponding EV revenues scale.
This is the classic ROIC compression problem for any company in a capital-intensive technology transition. The denominator grows immediately. The numerator grows only when the new products ship and achieve margin parity with legacy products.
The combustion engine S-Class earns roughly 15-18% margins at steady-state volumes. Current EV models are running at much lower margins as the company amortizes tooling costs and manages lower initial volumes. Until EV margins converge toward combustion margins, the invested capital base earns below its historical average.
This is not a permanent problem. It is a transition-period problem. The WACC framework helps you quantify how long the business can earn below its cost of capital before the stock becomes genuinely impaired rather than temporarily depressed.
What the Margin of Safety Calculation Shows
Run a scenario analysis using our DCF calculator. Three inputs drive the output:
- ROIC recovery trajectory (how fast and how far ROIC recovers toward 12-15%)
- WACC assumption (7.7% industrial, 8.5% blended)
- Terminal growth rate (2-3% for a global automotive manufacturer)
| ROIC Recovery Scenario | Implied Intrinsic Value | Upside vs. Current Price |
|---|---|---|
| No recovery, ROIC stays at 8% | 50-55 EUR | At current levels, roughly fair |
| Partial recovery to 11% by 2027 | 65-75 EUR | 15-30% upside |
| Full recovery to 15% by 2027 | 80-90 EUR | 40-60% upside |
| ROIC falls to 5% by 2026 | 35-40 EUR | 30-40% downside |
The margin of safety only exists in the recovery scenarios. If you do not have a reasoned view on why ROIC will recover, you do not have a value thesis. You have a hope.
What Value Investors Can Learn From This Case
Mercedes-Benz Group WACC teaches three lessons that apply to any capital-intensive stock.
First, always separate operating and financial businesses before calculating WACC. Captive finance arms distort both the capital structure and the ROIC calculation when aggregated without adjustment.
Second, cyclical peak earnings create dangerous valuation anchors. An investor who bought Mercedes because the P/E looked cheap relative to 2022 peak earnings was anchoring to numbers that were never sustainable. The WACC analysis forces you to think about normalized returns, not peak returns.
Third, a stock can be cheap on price multiples and still be fairly priced or even overpriced on an intrinsic value basis. The gap between a low P/B and genuine undervaluation is precisely the ROIC-WACC spread. Stocks where ROIC exceeds WACC command premiums to book. Stocks where ROIC falls short of WACC deserve discounts.
Use the ValueMarkers screener to filter for stocks where estimated ROIC exceeds an industry-specific WACC estimate. That filter finds businesses that are creating value, not just businesses that look statistically cheap.
Further reading: SEC EDGAR · FRED Economic Data
Why MBG cost of capital Matters
This section anchors the discussion on MBG cost of capital. The detailed treatment, formula, and worked examples appear in the body of this article above. The points below summarize the most important takeaways for value investors who want to apply MBG cost of capital in real portfolio decisions. ValueMarkers exposes the underlying data on every covered ticker via the screener and stock profile pages, so the concepts in this article translate directly into actionable filters.
Key inputs for MBG cost of capital
See the main discussion of MBG cost of capital in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using MBG cost of capital alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Sector benchmarks for MBG cost of capital
See the main discussion of MBG cost of capital in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using MBG cost of capital alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Related ValueMarkers Resources
- Enterprise Value to EBIT (EV/EBIT) — Enterprise Value to EBIT captures how cheaply a stock trades relative to its fundamentals
- Margin of Safety — Margin of Safety expresses how cheaply a stock trades relative to its fundamentals
- Enterprise Value to Free Cash Flow (EV/FCF) — Enterprise Value to Free Cash Flow captures how cheaply a stock trades relative to its fundamentals
- Wacc Weighted Average Cost Of Capital Guide — related ValueMarkers analysis
- Debt To Equity Ratio How To Analyze Leverage — related ValueMarkers analysis
- Stock Market Crash — related ValueMarkers analysis
Frequently Asked Questions
what percentage of united health group is owned by vanguard
Vanguard Group typically holds between 8% and 9% of UnitedHealth Group's outstanding shares, making it one of the largest institutional holders. The exact percentage shifts with each quarterly 13F filing as index fund rebalancing adjusts position sizes. You can track the current ownership level through SEC EDGAR or our screener institutional ownership data.
canon imaging group sales percentage 2021 annual report
Canon's 2021 annual report shows the Imaging System Business Unit accounted for approximately 51-52% of total company revenue. The segment includes cameras, inkjet printers, and imaging-related products. Canon uses different segment naming conventions across filings, so the exact label to search for is the Imaging System Business Unit within the consolidated financial statements.
how do you calculate wacc
WACC equals the cost of equity times the equity share of total capital, plus the after-tax cost of debt times the debt share of total capital. For cost of equity, apply CAPM: risk-free rate plus beta times the equity risk premium. For after-tax cost of debt, multiply the effective interest rate by (1 minus the corporate tax rate). Always use market values for equity and debt rather than book values.
canon annual report 2021 imaging group sales percentage
In Canon's 2021 fiscal year, the Imaging System Business Unit generated approximately 1.64 trillion yen of the total 3.16 trillion yen in group revenue, representing roughly 52% of consolidated sales. These figures appear in Canon's annual securities reports filed with Japanese regulators and are available on Canon's investor relations website.
canon annual report 2021 printing group sales percentage
Canon's Office Business Unit, which covers laser printers and multifunction devices, represented approximately 38-40% of total revenue in 2021. Together with the Imaging System Business Unit, these two segments accounted for the vast majority of Canon's sales. Canon restructured its segment reporting in subsequent years, so percentage breakdowns from 2022 onward use different category labels.
canon annual report 2022 imaging group sales percentage
In Canon's 2022 annual report, the Imaging System Business Unit's revenue share shifted modestly from 2021 as printing demand softened and camera segment revenue recovered with post-pandemic travel. The imaging segment represented approximately 49-51% of total group revenue for fiscal 2022. Exact figures depend on whether you are reading the Japanese GAAP or IFRS-aligned disclosures.
Test your own ROIC recovery assumption for Mercedes in our DCF calculator. Input the WACC, set a normalized margin, and see whether the stock is a genuine margin of safety or a value trap at current prices.
Written by Javier Sanz, Founder of ValueMarkers. Last updated April 2026.
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