Mercedes-Benz is rethinking how it does business in China, but it certainly has no intention of leaving. And the German brand confirms that it will present a larger plan for the country in 2027, even though its sales there continue to decline.
Why it matters. China is where Mercedes makes a good chunk of its profits, and now that’s exactly where its problems are centered. According to the company’s latest financial report, in the third quarter, Mercedes car sales in the country fell by 31% year-on-year. Adjusted profit in the core automobile division more than halved to €560 million, and margins narrowed to 2.5% from 4.8%. Mercedes shares have lost more than a third of their value this year, according to Bloomberg Shares.
its messageCEO. In a statement to present the results, the company’s CEO Ola Kallenius made it clear that going back is not an option. “There is no strategy to sideline China,” he said. For Kallenius, China is one of the pillars of the company’s strategy and he argues that, apart from its size, China is important because of its fast-moving technology ecosystem and the growing international reach of Chinese suppliers and automakers.
What went wrong. Callenius acknowledged that the situation in China is “deteriorating more than we thought,” according to Bloomberg. The losses are greatest at the high end of the market, where Mercedes has traditionally enjoyed the highest margins. The media cited China’s real estate crisis, intense price competition and local rivals who are now competing in software, electrical technology and, increasingly, design, among the reasons for low demand for luxury goods. A day before the results conference, Mercedes has already cut its forecast for the year.
New method. The company is reviewing its product range, sales, manufacturing, sourcing and technology in China, Bloomberg reported. The first example is the upcoming electric E-Class, which Callenius said is practically built from “a sheet of paper” for Chinese buyers. It will be manufactured almost entirely in China, which will significantly reduce variable costs.
limit Källenius followed other competitors by lowering the price of their cars to gain market share, as he explained during the presentation. That leaves Mercedes with the task of protecting a luxury brand while competing in one of the world’s most aggressive price wars. Chief Financial Officer Harald Wilhelm said the company wants to rely less on profits from China and is moving its supply chain towards full local sourcing, according to Reuters.
between the lines. Mercedes now sees China as a structural challenge rather than a temporary blip. And that’s important because Callenius’ strategy has focused on selling fewer but more expensive cars, relying on the S-Class, Maybach, G-Class and AMG ranges. Such a formula is difficult to sustain if luxury spending in China is weak.
And Mercedes is not the only one facing this problem, as BMW and Volkswagen have also warned that China is hurting their profits, and precisely the CEO of Volvo Cars, Håkan Samuelsson, announced a few weeks ago that the car market developed in the West in China will not return.
Other bets. While they think about what to do in China, the company is looking for growth in other places like the US. In this country, Callenius confirmed that the company is planning further investments and sees room to increase annual sales from more than 300,000 vehicles to around 400,000 as shared by Reuters. He also noted that labor costs in the United States, despite the country’s high wages, are about 80% of Germany’s level. Audi, in fact, has taken a similar step by announcing a $4 billion assembly plant in the United States, creating 4,500 jobs.
close to home In Germany, things also point to a turnaround as, according to Reuters, the brand will reintroduce an incentive leave program for indirect workers starting in December and most of the impact on profits is expected to occur in 2027. Callenius also assured that new investments in Germany depend on better productivity and lower costs, and noted that there are already low-cost manufacturing alternatives in Rome. presence
what happens now. Mercedes plans more than 40 new or refreshed models between now and the end of 2027, as shared by Bloomberg, including the electric CLA and GLC, which are already being deployed, and new versions of the C, S, GLE and GLS classes. The company aims to achieve material cost savings of about 8% over 2024 with deeper cuts in China.
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