By William Boston 

BERLIN -- Daimler AG reported higher earnings and sales Thursday, beating analysts' forecasts even as its Mercedes-Benz unit continued to struggle with high investments in electric cars and new technology and lingering criminal investigations in the U.S. and Europe.

Global auto makers, faced with stricter greenhouse gas emission standards, are in the midst of a fundamental shift to electric mobility and are ramping up spending as a result. Adding to the burden, the shift is happening just as a decadelong bull run in auto sales is coming to an end.

Big premium car makers like Daimler, Audi AG and BMW AG have sought to drive emissions down by producing more electric cars and hybrids, as well as developing a broad range of smaller, less polluting vehicles. The companies also want to boost volume sales of less expensive -- and less profitable -- models to help cover the rising technology costs.

But the third-quarter report shows that Mercedes is struggling to boost profits while simultaneously investing in new technology. With demand for cars falling world-wide, auto makers are cutting prices, making it hard to offset the rising costs of building electric cars with a vast array of digital features.

The upshot: in the three months to the end of September, unit sales at Daimler's flagship Mercedes-Benz Cars division rose 8% to 604,655 vehicles, but the return on those sales dropped to 6% from 6.3%.

Highlighting the sluggish trend, Mercedes sales fell 1% to 1.74 million vehicles in the first nine months of this year, and the return on sales plunged to 3.1% from 7.9% a year ago.

"In order to master the transformation in the next few years, we need to increase our efforts considerably: we have to significantly reduce our costs and consistently strengthen our cash flow," said Chief Executive Ola Källenius in a statement accompanying the quarterly earnings.

Mr. Källenius is expected to present the results of a monthslong strategy review at meetings with investors next month, who are hoping to hear more details about the company's efforts to rein in costs.

Overall, Daimler's earnings were ahead of analyst forecasts, driving the company's shares 5% higher in early morning trading in Frankfurt.

Daimler, which also makes trucks, vans and buses, and operates a range of car-sharing, ride-hailing and other new mobility services, reported third-quarter net profit of EUR1.72 billion ($1.91 billion) after a EUR1.2 billion loss in the previous quarter. Sales rose 8% from a year ago to EUR43.27 billion.

Analysts had focused on the company's ability to generate strong cash flow in the quarter. But Daimler is bleeding cash as a result of charges related to antitrust investigations in Europe and a recent German regulator's ruling that found the company had used illegal software to manipulate diesel emissions in some 2018 and 2019 models.

In September, Daimler was fined EUR870 million by German authorities in connection with this case. In its third-quarter report, Daimler said the risk of negative impacts on earnings and its credit rating from additional fines and charges had increased in light of investigations in the U.S. and Europe.

"There is a considerable amount of uncertainty because of these diesel-related investigations," Daimler Chief Finance Officer Harald Wilhelm told reporters, saying there could be additional financial charges in the fourth quarter.

In light of the fines and costs so far, Mr. Wilhelm said Daimler 2019 earnings before tax to be "significantly below" the level of the previous year.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

October 24, 2019 06:09 ET (10:09 GMT)