Mercedes-Benz has adjusted its course after the profit generated by its car-making arm dropped by a huge 39.1% last year – and the situation is set to worsen in 2025.
The company announced a drive to cut 10% from the cost of building a car by 2027, which it said it will achieve by working with suppliers.
It comes after the earnings of its car-making arm fell from €14.3 billion (£11.8bn) in 2023 to €8.7bn last year (£7.2bn).
The company attributed the fall to a drop in the price of the cars it sold, as well as a 3.0% reduction in the number of deliveries it made, which fell to 1.98 million units.
Mercedes cited an unfavourable model mix as a key factor. The ratio of ‘top-end’ cars – Maybachs, AMGs, G-Classes and S-badged models – it sold shrunk from 16% in 2023 to around 14% last year.
Indeed, combined sales of the S-Class, GLS, EQS and EQS SUV models dropped by a quarter over the year, to 127,000.
Weak demand for such models in China was a particular contributor to the company’s woes.
The shortfall in top-end sales, combined with a growth in sales of less profitable ‘core’ models (such as the E-Class), played a key role in dropping Mercedes-Benz Cars’ return on sales from 12.6% to 8.1% over the year. That almost puts the manufacturer on a par with mainstream brands such as Renault, which recorded a 7.4% margin last year.
Mercedes added that research and development costs for future platforms and technologies remain high. Autocar this week reported the company is set to launch 21 new cars over the next 24 months, for instance.
The Mercedes Group also took hits from its van division (whose earnings dropped 7.8%) and from financial services (whose profits fell by 33.1%).
Mercedes said that, as well as cutting costs, it will push its agency sales channel – in which cars are sold directly to buyers by the firm, rather than to a dealer who then sells the vehicle on – to improve the customer experience and therefore boost pricing.
The company reiterated that a deluge of new models is incoming, including the next-generation CLA (due this year) and a new C-Class and GLC next year, as well as a significant update for the S-Class.
Mercedes Group CEO Ola Källenius said: “To ensure the company’s future competitiveness in an increasingly uncertain world, we are taking steps to make the company leaner, faster and stronger, while readying an intense product launch campaign for multiple new vehicles starting with the all new CLA.”
But first, the company must weather a difficult 2025, in which it expects sales volumes and its returns on those sales to fall once again – bringing yet another big hit to profitability.
Add your comment