Mercedes-Benz (MBGn.DE) announced on Thursday that it will implement further cost-cutting measures and prioritize petrol and diesel vehicles over electric vehicles (EVs) in its new product lineup. The move aims to revive margins as the luxury carmaker anticipates a sharp decline in earnings for 2025.
New Product Range and Strategy
Mercedes-Benz will launch 19 new combustion engine models and 17 battery-electric cars by the end of 2027. The decision reflects a strategic shift towards combustion engines after a 25% drop in battery-electric vehicle sales last year. Most new models will be in the high-end price segment, aligning with the company’s strategy of focusing on lower volumes but higher-margin vehicles.
“The strategy of value over volume remains in place – it has not been abandoned,” CFO Harald Wilhelm stated, emphasizing that combustion engine vehicles continue to outperform electric cars in sales and profitability.
Localizing Production Amid Trade Tensions
To mitigate risks from rising global trade tensions, including potential U.S. tariffs on vehicle imports, Mercedes-Benz plans to localize more production in China and the United States.
Despite the strategic adjustments, Mercedes-Benz shares fell 1.5% on Thursday, leading losses on the blue chip euro STOXX 50E index as investors expected more announcements regarding capital returns.
Challenges and Bleak Earnings Outlook
Following a 30% drop in earnings in 2024 and a 40% decline in its cars division, Mercedes-Benz expects an even steeper earnings decrease in 2025, forecasting a return rate of just 6-8% for its car division. This outlook contrasts sharply with the optimistic vision of up to 14% adjusted return on sales outlined in 2022.
The European auto industry faces multiple challenges, including high energy and labor costs, with competitors like Volkswagen announcing deep cuts to maintain profitability.
Cost-Cutting and Production Adjustments
Mercedes-Benz plans to reduce production costs by 10% by 2027 and double that by 2030, expanding on an existing cost reduction initiative that aimed for a 20% cost cut between 2019 and 2025.
While the company will not close its German plants, it will shift the production of one model to its plant in Hungary, where costs are 70% lower. Additionally, it will outsource roles in finance, HR, and procurement while reducing workforce size through retirements and voluntary redundancies.
Focus on China and Strategic Market Positioning
China remains a key market for Mercedes-Benz, which plans to increase its market share in the region over the next five years. However, the company intends to avoid “irrational decisions” like aggressive price cuts, which some competitors have pursued to capture market share.