Mercedes-Benz initiates the largest transformation in history

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

As the global automotive industry undergoes significant turbulence amid the waves of electrification and intelligence, Mercedes-Benz has delivered a financial report that leaves the market with mixed feelings.

The financial report released by Mercedes-Benz on February 20 shows that several financial metrics, including sales and profits, have declined year-on-year. Additionally, in its performance guidance, Mercedes-Benz's expectations for revenue and EBIT (earnings before interest and taxes) in 2025 are also lower than those for 2024. However, Mercedes-Benz still demonstrates strong cash management capabilities.

Behind these figures lies the typical challenges faced by traditional luxury car manufacturers during their transformation, as well as positive signals hidden in strategic adjustments.

At the subsequent earnings conference, Mercedes-Benz Chairman of the Board, Karl Friedrich Benz, stated, "As the guardian of the legendary Mercedes-Benz brand, we will continue to unleash the development potential of the Mercedes-Benz brand."

According to Wall Street Insights, Mercedes-Benz will initiate the most powerful transformation in the history of the Mercedes-Benz Group from dimensions such as product lineup and technological capabilities. At the same time, there are specific measures at the operational level to enhance Mercedes-Benz's competitiveness and resilience.

Harald Wilhelm, a board member responsible for financial control and mobility at Mercedes-Benz Group, stated that relying on this series of initiatives, Mercedes-Benz is fully prepared to recalibrate its operational balance point and restore to double-digit profit levels in the near future.

Mercedes-Benz is attempting to prove to the market through this "largest transformation in history" that the competition for the luxury car throne is never a sprint but a marathon.

Test

Mercedes-Benz's latest financial report deeply reflects the challenges faced by traditional luxury cars in the current changes and the growing pains brought about by transformation.

In recent years, Mercedes-Benz has relied on adjustments in its product structure to allocate more resources to higher-margin high-end luxury and core luxury models, allowing financial data to remain stable during the transformation.

However, the slowdown in the global market's electrification transition and competition in some major markets have put this strategy to the test.

In the past year, Mercedes-Benz's revenue was €145.594 billion (approximately RMB 1.1 trillion), a year-on-year decrease of 4.5%. Among traditional car manufacturers, this decline is not significant.

The pressure on the passenger car business is the main factor behind Mercedes-Benz's poor performance in profit and other data. Sources familiar with Mercedes-Benz indicate that fierce competition in the Chinese market and the recent economic downturn in Europe have impacted automotive giants like Mercedes-Benz.

In terms of sales figures, Mercedes-Benz's passenger car sales in 2024 were 1.9834 million units, a decrease of 60,648 units year-on-year, down about 3%. The Chinese market is the main source of the decline in Mercedes-Benz's sales, with total sales in the Chinese market for 2024 at 683,600 units, a year-on-year decrease of 7.3%.

Affected by unfavorable factors such as reduced sales volume and lower net prices in the passenger car business segment, the adjusted EBIT for the passenger car business last year was €8.7 billion, compared to €14.3 billion in the same period of 2023.

The adjusted sales profit margin (RoS) for the passenger car segment of Mercedes-Benz also fell from 12.6% in 2023 to 8.1% in 2024.

In the past year, new energy vehicle companies, including ZEEKR, Nio, Aito, and Li Auto, have directly competed with entry-level and core models of luxury brands like Mercedes-Benz, leveraging their advantages in intelligence and electrification. The increase in players at the table has intensified competition in the Chinese luxury car market Including luxury brands like Mercedes-Benz, they have to adjust their response strategies. The past approach of relying on entry-level models to boost sales while maintaining high profits from luxury models is becoming less effective.

From Mercedes-Benz's specific data, it can be seen that the decline in sales mainly comes from "high-end luxury" and "new generation luxury," especially the sales of entry-level models, which dropped from 619,000 units in 2023 to 534,000 units last year, with their share of total sales falling from 30.3% to 27%.

The highlight is that Mercedes-Benz continues to perform outstandingly in the million-level luxury car market. Last year, the combined sales of the Mercedes-Benz S-Class and Maybach S-Class reached 29,100 units, surpassing the total of its competitors, the BMW 7 Series, Audi A8, and Porsche Panamera.

In addition, the sales of Mercedes-Benz's core models grew by 6.5% year-on-year last year, increasing from 1.096 million units in 2023 to 1.167 million units, which also supported its overall financial data.

The performance of Mercedes-Benz's light commercial vehicle business remained relatively stable, with adjusted EBIT for 2024 expected to be €2.8 billion, a slight decrease compared to the same period in 2023.

Sales, revenue, and profit reflect the operational pressures faced by Mercedes-Benz over the past year, but in terms of financial management capability, Mercedes-Benz continues to demonstrate its financial resilience.

The financial report shows that Mercedes-Benz's industrial business free cash flow reached €9.2 billion in 2024. During this period of industry transformation, Mercedes-Benz still maintains ample free cash flow, providing a solid foundation for future R&D investments and shareholder returns.

According to Mercedes-Benz's plans, the company will repurchase shares worth no more than €5 billion over the next 24 months, and there is also a plan for a dividend of €4.30 per share this year. This strategy is both a compromise for shareholder interests and a way to secure a time window for long-term transformation.

Breakthrough

It can be seen that the changes in the Chinese market are closely related to Mercedes-Benz's performance in 2024. The management of Mercedes-Benz also admitted at the earnings meeting that the performance of the Chinese market in the second half of last year was one of the reasons affecting revenue and profitability.

Currently, the Chinese market is the main consumer country, the largest automobile exporter, and at the forefront of smart electric vehicle technology, making competition in the Chinese market particularly fierce. In recent years, multinational car companies have also made their choices through practical actions, either increasing or reducing production lines in response to changes in the Chinese market.

For any company hoping to continue leading the global automotive market and maintain its leading position, this is also a strategic location. Further rooting in the Chinese market and leveraging the technological advantages of the Chinese market will lay the foundation for future global competition.

Mercedes-Benz has also chosen to respond to the changes with an unprecedented transformation, in which China will play a crucial role.

According to Mercedes-Benz's plans, it will launch the most powerful product offensive in its history. The all-new pure electric CLA model this year is the prelude to this product offensive, followed by a complete upgrade of the S-Class sedan in 2026 and a series of new Mercedes-AMG products. By 2027, Mercedes-Benz will continue to launch a dense and rich lineup of new or refreshed models.

Sources from Mercedes-Benz stated that the group hopes to achieve a global market share of over 30% for new energy vehicles by 2027 through the successive launch of electrified models Synchronously, Mercedes-Benz has clarified its operational improvement plan, aiming to reduce production costs by 10% by 2027 through supply chain collaboration and production flexibility, while maintaining efficiency and flexibility during the electrification transition.

To achieve this transformation goal, the core lies in upgrading China from a "sales engine" to an "innovation engine."

The two major R&D centers in Beijing and Shanghai have become important support points for Mercedes-Benz's global intelligent transformation. For example, the CLA model to be launched this year will be equipped with the self-developed MB.OS operating system as standard across the entire range, with application optimizations made for the Chinese market. Additionally, it will feature the "no map" L2++ advanced driving assistance system led by the Chinese team. Mercedes-Benz hopes to leverage this to compete with new Chinese forces for the discourse power of "technological luxury." Relevant technologies will also benefit the global market.

At the same time, there will be further optimization of costs. Mercedes-Benz has proposed to reduce material costs by 10% through deeper localization of components in the local supply chain, while also planning to lower variable production costs and fixed costs. Concurrently, it is evaluating potential adjustments to the dealer network and local production.

In terms of electrification technology, Mercedes-Benz also emphasizes its advantages. With the launch of the CLA model this year, all upcoming pure electric models are planned to adopt a steer-by-wire system, laying the technical groundwork for higher-level intelligent driving systems.

Marcus Schaefer, CTO of Mercedes-Benz Group, pointed out that all these models are equipped with a fully integrated technology stack, utilizing the latest developments in the field of artificial intelligence, and will include technologies such as autonomous driving assistance systems and new steer-by-wire systems.

Recently, Mercedes-Benz announced that its collaboration with Factorial Energy to develop all-solid-state batteries has begun road testing, achieving an energy density of 450 kWh/kg. The pure electric EQS test vehicle equipped with this solid-state battery can travel over 1,000 kilometers on a single charge.

When Ola Källenius pressed the transformation button at the Stuttgart headquarters, this transformation was not just about product iteration but also about the reconstruction of organizational genes. From Munich to Beijing, from assembly lines to software code, Mercedes-Benz proves through continuous investment that the future of luxury cars must win the intelligent transformation battle on the Chinese battlefield.

In the face of the offensive from new forces, a survival game of "elephant versus cheetah" has already begun. Its success or failure not only concerns the fate of Mercedes-Benz as a single enterprise but will also define the survival paradigm of traditional luxury brands in the era of intelligent electrification. The Chinese market is the ultimate testing ground for this transformation