Mercedes-Benz repositions strategy amidst EV market challenges

Mercedes-Benz is preparing for a major product overhaul in the next two to three years, following the underperformance of its initial generation of electric vehicles (EVs). This strategic pivot includes renewed investment in its high-margin, fuel-burning vehicles, reflecting customer preferences for advanced combustion-engine cars. Chief Executive Officer Ola Källenius emphasised the need for flexibility well into the 2030s, while maintaining the company’s commitment to carbon neutrality by 2039.

Balancing electric and combustion engines

Källenius stated, "We need flexibility for longer, until deep into the 2030s. We remain committed to offering electric versions of the entire lineup this decade, but we must ensure our combustion-engine cars remain competitive." This dual approach comes as the automaker scales back its electrification plans in response to slowing EV demand.

Add WION as a Preferred Source

Struggles with electric vehicle sales

Mercedes-Benz has faced significant challenges with its EV sales, trailing behind competitors like BMW. In the first quarter, Mercedes' battery-vehicle sales fell 9% to 50,500 units, while BMW's surged to 82,700 vehicles. The EQS, a flagship electric sedan launched in 2021, has particularly underperformed, drawing criticism for its design and lacking key luxury features appreciated by customers in crucial markets like China.

Adjusting to market realities

The underwhelming performance of the EQS and other electric models has led Mercedes to adjust its ambitious goal of selling only EVs where possible by 2030. The company now aims for roughly half of its sales to be electric by that year. This realignment mirrors adjustments by other automakers, including Audi and Jaguar Land Rover, as the industry grapples with fluctuating EV demand and market uncertainties.

Design upgrades and new models

To address customer feedback and boost sales, Mercedes is preparing a face-lifted version of the EQS, with enhancements to back-seat comfort and the return of the iconic three-pointed star hood ornament. Källenius acknowledged that higher spending on lifecycle management contributed to a decline in returns during the first quarter, falling to 9% from 14.5% a year earlier.

Mercedes-Benz is set to launch its next generation of vehicles on new platforms starting next year. This includes the entry-level CLA coupe and later the GLB SUV. During a preview at the company’s design centre in Sindelfingen, Källenius highlighted the improved roominess in the upcoming models, demonstrating the back-seat space himself.

Future plans and financial strategy

The automaker is also planning to introduce a compact electric version of the G-Wagon by 2026. The new CLA model will be available in both battery-powered and combustion-engine versions and will lead the current portfolio in driver-assistance systems and computing power, according to Källenius.

While focusing on maintaining profitability from combustion-engine vehicles, Mercedes is also pushing for savings in purchasing, fixed costs, and non-essential spending. The company may free up as much as EUR 10.5 billion by selling its remaining stake in Daimler Truck, which was spun off in 2021. The lockup period for Mercedes' remaining 35% holding expires at the end of the year.

Källenius remarked, "The stake represents an additional reserve in addition to our net industrial liquidity. No decision has been made, and the carmaker is fully focused on the needs of the Mercedes customer."

Navigating geopolitical challenges

Mercedes is also navigating geopolitical tensions that impact its EV strategy. The European Union is set to formalise provisional tariffs on China-made battery cars, with duties potentially rising to 48%. This could affect Smart models produced by the Mercedes-Geely joint venture in China, which would face a 20% tariff on top of the existing 10%.

Källenius expressed concerns about potential trade conflicts, stating, "When you have benefited from open markets as Germany has for decades, it doesn’t make sense to possibly trigger a trade conflict. We manufacture the Smart in China with our partner Geely and are thus importing cars to Europe at a significant scale."

Mercedes-Benz's strategic shift underscores the complexities of transitioning to electric vehicles while maintaining a competitive edge in traditional markets. The company's balanced approach, focusing on both advanced combustion engines and innovative electric models, aims to navigate current market challenges and geopolitical uncertainties. As Mercedes prepares to launch its next generation of vehicles, the automotive world will be watching closely to see how these changes impact its market position and long-term goals.