AMG AMG Business Risk Report

I. Market Risks

A. Fluctuations in market demand for luxury vehicles

AMG, being a high-performance subsidiary of Mercedes-Benz, experiences fluctuations in market demand influenced by economic cycles. Luxury vehicle demand can decrease during economic downturns as disposable income shrinks.

B. Evolving consumer preferences towards electric vehicles

As global emphasis on sustainability increases, consumer preferences are shifting towards electric vehicles (EVs), impacting brands traditionally focused on internal combustion engines like AMG. In response, AMG is developing its electrification strategy to capture this evolving market segment.

II. Operational Risks

A. Disruption in the supply chain due to global events (e.g., pandemic, natural disasters)

AMG’s complex supply chain is vulnerable to disruptions caused by global events such as pandemics or natural disasters. This was notably evident during the COVID-19 pandemic, which caused delays in production due to supply chain interruptions and factory shutdowns.

B. Manufacturing defects impacting product quality and reputation

AMG, known for its high-quality and precision engineering, could face significant reputational damage from any major manufacturing defects. Such issues could also lead to costly recalls and legal issues, impacting financial stability and consumer trust.

III. Financial Risks

A. Currency exchange rate fluctuations affecting international sales and revenue

As a global player, AMG faces financial risks from fluctuating currency exchange rates, potentially affecting its revenue and profitability margins when converting foreign earnings back to euros.

B. Increased borrowing costs due to changes in interest rates

Interest rate hikes increase borrowing costs impacting AMG’s finance leases and credit facilities. Such changes can strain capital allocations and affect overall financial planning.

IV. Regulatory Risks

A. Changes in emission standards impacting production and sales

Stricter global emission standards pose challenges for AMG, as adapting to these changes often requires significant investments in technology to reduce emissions of their high-performance engines.

B. Compliance with evolving data protection regulations (e.g., GDPR, CCPA)

AMG must continuously adapt to comply with stringent data protection regulations such as Europe’s GDPR and California’s CCPA, as any non-compliance could result in heavy fines and damage to customer trust.

V. Reputational Risks

A. Negative publicity regarding environmental impact and sustainability practices

As a producer of luxury and performance vehicles, AMG is particularly susceptible to criticism over environmental impact. Negative publicity surrounding sustainability practices can damage its reputation among environmentally conscious consumers.

B. Customer dissatisfaction leading to brand damage and loss of market share

AMG risks potential brand damage and loss of market share from customer dissatisfaction, which can come from various sources including perceived decline in product quality or poor customer service.

VI. Mitigation Strategies

A. Diversification of product portfolio to adapt to changing market trends

AMG is diversifying its product portfolio to include electric and hybrid models, adapting to changing market demands and the global shift towards sustainability.

B. Establishing strong relationships with multiple suppliers for operational resilience

To mitigate supply chain risks, AMG has been developing robust relationships with multiple suppliers to ensure operational resilience and continuity in case of disruptions.

C. Implementing hedging strategies to mitigate financial risks from currency fluctuations

AMG employs financial instruments and hedging strategies to minimize the risks associated with currency fluctuations, securing more predictable financial outcomes.

D. Regular monitoring of regulatory changes and ensuring compliance through proactive measures

AMG actively monitors global regulatory changes, investing in compliance to adapt timely to new laws and avoid potential fines and legal challenges.

E. Investing in public relations and customer service to uphold a positive brand image and reputation

AMG invests heavily in high-quality customer service and responsive public relations to maintain a positive brand image and effectively manage any negative incidents that may arise.