Mercedes-Benz saw profits from car sales fall by two-thirds in the third quarter of 2024. Faced with margins dropping to just 4.7 percent, the German luxury automaker is implementing an ambitious cost-cutting plan, targeting several billion euros in annual savings over the coming years.
The strategy is to combine a reduction in expenses with an increase in revenues per vehicle thanks to greater model customization.
The quest for efficiency and profitability
Mercedes-Benz CFO Harald Wilhelm stressed in an October investor call that drastic measures were necessary, describing recent performance as unacceptable.
Although no head count regarding job cuts was announced, Wilhelm did say that labour costs were under close scrutiny.
In Germany, the 91,000 employees covered by collective agreements are protected by job guarantees, but temporary contracts are not subject to the same protection. At the Sindelfingen plant, falling demand for the S-Class and EQS models led to the non-renewal of a number of those temporary contracts.
A program that builds on past efforts
The current measures build on efficiency gains achieved since 2019, when Mercedes-Benz further standardized the design and procurement of its vehicles. In 2020, the brand sold its Hambach plant in France to Ineos, which now produces the Grenadier there.
An evaluation of operations at sites such as the Aguascalientes plant in Mexico is also continuing, while the localization of supply chains, notably in China, is being considered to reduce costs.
A costly transition to electric vehicles
The German automotive sector faces major challenges, including high energy costs, inflation and the costly investments involved in the electric transition. Mercedes-Benz, like its competitors BMW and Volkswagen, is struggling to remain competitive.
Weak sales in China of premium models like the S-Class, as well as costly destocking of electric vehicles, contributed to weak third-quarter results.
Faced with limited demand for EVs, Mercedes-Benz has decided to invest more in combustion engines and hybrids, hoping to keep them competitive “well into the next decade”.
Upcoming flagship models
Mercedes-Benz is also counting on new offerings to help it turn things around. In 2024, the brand is launching the CLA, the first model based on the MMA platform, offering extended electric range, an advanced MB.OS system and Level 2+ autonomous driving capabilities.
Other launches will follow, notably electric versions of the C-Class and GLC plus an electric AMG, as well as refreshed editions of the S-Class and GLE. The company is also streamlining its compact range, which is shrinking from seven models to four, with a particular focus on premium options such as high-capacity batteries.
Optimism for the Chinese market
Despite disappointing sales of EQS models in China, Harald Wilhelm remains confident about growth prospects. Current challenges, such as economic pressures and the real estate slowdown, are affecting demand from affluent consumers.
However, Mercedes-Benz remains convinced that its product range is well positioned to conquer the competitive EV market in China.
A strategy focused on luxury
Mercedes-Benz has reaffirmed its commitment to a luxury strategy, prioritizing profitability over volume. The automaker plans a strategic update in early 2025, focusing on increased vehicle customization, an approach already successful with the Maybach and AMG models.