Mercedes-Benz is set to undergo a significant product overhaul within the next two to three years in response to the underperformance of its first generation of electric vehicles (EVs). This strategic pivot includes renewed investment in its high-margin combustion-engine vehicles, reflecting customer preferences for advanced fuel-burning cars. Chief Executive Officer Ola Källenius highlighted the necessity for flexibility into the 2030s while reaffirming the company’s commitment to carbon neutrality by 2039.
Balancing Electric and Combustion Engines
“We need flexibility for longer, until deep into the 2030s,” stated Källenius. “We remain committed to offering electric versions of the entire lineup this decade, but we must ensure our combustion-engine cars remain competitive.” This balanced approach comes as Mercedes scales back its electrification plans due to slowing EV demand.
Struggles with Electric Vehicle Sales
Mercedes-Benz has faced significant challenges in EV sales, lagging behind competitors like BMW. In the first quarter, Mercedes’ battery-vehicle sales dropped 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, criticized for its design and lacking key luxury features appreciated in critical markets like China.
Adjusting to Market Realities
The disappointing performance of the EQS and other electric models has led Mercedes to revise its ambitious goal of selling only EVs where possible by 2030. The company now aims for approximately half of its sales to be electric by that year. This adjustment mirrors changes by other automakers, including Audi and Jaguar Land Rover, as the industry navigates 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 increased 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 will launch its next generation of vehicles on new platforms starting next year, including the entry-level CLA coupe and later the GLB SUV. During a preview at the company’s design center in Sindelfingen, Källenius demonstrated the improved roominess in the upcoming models, emphasizing back-seat space.
Future Plans and Financial Strategy
The automaker plans 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 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, spun off in 2021. The lockup period for Mercedes’ remaining 35% holding expires at the end of the year.
“The stake represents an additional reserve in addition to our net industrial liquidity,” Källenius remarked. “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 impacting its EV strategy. The European Union is set to formalize 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, facing a 20% tariff on top of the existing 10%.
“When you have benefited from open markets as Germany has for decades, it doesn’t make sense to possibly trigger a trade conflict,” Källenius expressed. “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 closely watch how these changes impact its market position and long-term goals.
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