Having experienced a 30-percent drop in profits in 2024, Mercedes-Benz is taking measures. The automaker announced it will reduce production capacity and relocate some to countries where it’s more profitable to operate. The brand expects its automotive margin to fall to 6.0 percent in 2025, a far cry from the 12.6 percent of 2023.
Cuts in Germany and strategic relocations
Mercedes will reduce production capacity at its German plants from 1 million to 900,000 vehicles by 2027. No plant closures are planned, but job cuts through natural attrition are expected.
Compact cars will be partly produced in Hungary, where costs are 70 percent lower than in Germany. Mercedes will outsource certain functions, in terms of finance, human resources and procurement. The plan also includes increasing local production in target markets (U.S. and China); there the proportion of vehicles produced locally will rise from 60 to 70 percent.
Fewer electrics, more combustion engines
With its low sales volume of electric vehicles, Mercedes is struggling to maintain its margins. Sales of EVs fell by 25 percent in 2024 for the brand, prompting it to review its product strategy.
New model launches
Mercedes intends to launch 19 combustion-powered vehicles (gasoline and diesel) by 2027, as well as 17 electric models, with a focus on high-end models to maximize margins.
Expected growth in the U.S.
Mercedes sees growth potential in the U.S., notably via its Tuscaloosa plant in Alabama. That factory could produce a new model, possibly a C-Class or E-Class, in addition to the EQE, EQS and GLE SUVs already asembled there.
A low-volume but profitable strategy
Despite internal criticism, Mercedes is sticking to its strategy of favouring high margins over to volume. However, weak demand for its top-of-the-range models in China (Maybach, AMG, G-Class) is weighing on this approach.
An uncertain future due to trade tensions
Mercedes also has to contend with growing trade tensions. If the U.S. imposes tariffs of 25 percent on imported, that would be a major blow for Mercedes, which imports 63 percent of its vehicles sold in the U.S.
Mercedes hopes to restore its margins to 10 percent by 2027, notably through model upgrades, such as the S-Class update in 2026.
Mercedes-Benz is looking to reposition itself in the face of economic and commercial challenges. By focusing on more localized production, a more balanced mix of electric and combustion-powered vehicles, and a restructuring of its costs, the automaker hopes to return to profitability within a few years. It remains to be seen whether this strategy will be sufficient in the face of the rise of Chinese automakers and the uncertainties associated with global trade tensions.