Mercedes-Benz to re-focus on luxury models with new strategy

Mercedes-Benz will reduce the number of small cars it makes as part of a new strategy to re-focus on luxury markets and move away from volume segments.

Petrol and diesel engine development will be reduced in favour of electric and hybrid powertrains, while manual gearboxes are also being ditched.

Speaking at a virtual investor and analyst conference on October 6, Ola Källenius (pictured), chairman of the board of management of Daimler AG and Mercedes-Benz AG, said: “In recent years we have done many things right: design, product engineering, brand rejuvenation, sales growth.

"As a result, we have put Mercedes back on top again. But we have not yet lived up to our full potential in terms of turning volume success into profit growth. That’s why we have refocused and are launching our new strategy.”

The new strategy is designed to enhance the brand’s luxury status, raise the product portfolio’s positioning and mix, pursue significant growth for sub-brands AMG, Maybach, G and EQ and accelerate the development of electric drive and car software.

Mercedes currently offers the A-Class hatchback, A-Class saloon, B-Class, CLA, CLA Shooting Brake, and the GLA and GLB crossovers.

Small cars accounted for a quarter of the company’s sales in 2019, with the A-Class representing the driving force behind its massive sales boost in recent years.

“We intend to build the world’s most desirable cars,” explained Källenius. “It’s about leveraging our strengths as a luxury brand to grow economic value and enhancing the mix and positioning of our product portfolio.

We will unlock the full potential of our unique sub-brands – AMG, Maybach, G and EQ. Our strategy is designed to avoid non-core activities to focus on winning where it matters: dedicated electric vehicles and proprietary car software. We will take action on structural costs, target strong and sustained profitability.”

The brand wants to improve its profitability and cash generation and will therefore take significant new steps to reduce its cost base and improve industrial footprint in the period to 2025.

Fixed costs will be cut by more than 20% by 2025 in absolute terms compared to the 2019 baseline, via reduced spending, capacity adjustments and lower personnel costs.

Capex and R&D expenditure are also set to decrease by more than 20% by 2025 compared to 2019. Variable costs will be reduced by 1% net per annum compared to the level of 2019 during the period until 2025, including increased and prolonged savings targets for material costs.

Six new electric Mercedes-Benz models are planned to launch in the next two years.