2 days ago
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Mercedes-Benz has announced it plans to implement further cost-cutting measures and expand its lineup of petrol and diesel vehicles, signalling a shift in strategy as the company braces for a significant earnings decline in 2025.
The German luxury automaker’s move aims to revive margins following a sharp drop in battery-electric vehicle (EV) sales last year.
The company plans to release 19 new combustion engine models alongside 17 battery-electric vehicles by the end of 2027, reflecting a renewed commitment to its traditional powertrains.
This shift comes after Mercedes-Benz’s EV sales plummeted by 25% in 2024, highlighting challenges in the electric market.
Despite concerns from investors and labour representatives about its premium-focused approach, the company reaffirmed its commitment to high-margin, lower-volume sales.
“The strategy of value over volume remains in place—it has not been abandoned,” said CFO Harald Wilhelm. He emphasised that the continued strong sales of combustion engine models were beneficial for the company’s profit margins.
To mitigate risks from global trade tensions, Mercedes-Benz will localise more production in key markets like China and the United States. This move is particularly strategic in light of threats from US President Donald Trump to impose a 25% tariff on all vehicle imports starting in April.
However, the announcement failed to satisfy some investors expecting more details on capital returns, leading to a 1.5% drop in Mercedes-Benz’s share price at 1011 GMT, making it the biggest decliner on the blue-chip Euro STOXX 50E index.
The company’s forecast underscores investor concerns over its ability to navigate a tough global market. German car manufacturers face increasing competition from a protectionist US stance and the rise of Chinese EV makers.
“Luxury and China simply isn’t working, and both are vital to the Stuttgart-based car manufacturer’s business success,” said investment strategist Jürgen Molnar at brokerage RoboMarkets.
Mercedes-Benz reported a 30% drop in earnings in 2024, with a 40% decline in its cars division. The company expects earnings to fall even further in 2025, forecasting a return on sales in its car division of just 6-8%. This is a stark contrast to its previously optimistic 2022 capital markets day projection of up to 14% in strong market conditions and no less than 8% during downturns.
In response to mounting pressures, the company plans to reduce production costs by 10% by 2027, with an even steeper reduction targeted by 2030. These cuts extend beyond its 2020 initiative to lower costs by 20% between 2019 and 2025.
While Mercedes-Benz has ruled out plant closures in Germany, it will shift production of one model to its facility in Hungary, where production costs are 70% lower.
Additionally, the company will outsource functions in finance, human resources, and procurement, while implementing workforce reductions through voluntary redundancies and attrition.
Mercedes-Benz struggled in key markets like China and Germany last year, faring better than Audi but underperforming compared to BMW, which saw increased EV sales.
Looking ahead, the company plans to invest heavily in China over the next five years to expand its market share but will avoid aggressive price cuts. “We will stay away from irrational decisions by competitors to cut prices,” said CTO Markus Schaefer.
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