Mercedes-Benz AG announced Thursday it will cull its line-up of entry-level vehicles as part of an overhaul of its product strategy as the company refocuses its attention to the luxury segment.
The automaker will devote 75% of its investment capital to manufacturing vehicles that return the most profit. By catering to the top end of the market, the automaker believes it can deliver better financial results even under more challenging market conditions, such as a worldwide recession.
The rationale for this decision comes from some sales charts. In 2021, the Mercedes-Benz S-Class sales rose 40%, while its AMG and Maybach models also set new sales records. In the first quarter of 2022, Mercedes-Benz sold 10% fewer vehicles yet saw its profit jump 20% compared to the same period a year ago.
“We are further sharpening the focus of our business model and product portfolio in order to maximize the potential of Mercedes-Benz even in challenging conditions,” said Ola Källenius, chairman of the Board of Management of Mercedes-Benz Group AG. “At the heart of that is our goal to build the world’s most desirable cars.”
The automaker is looking to increase its operating margin to 14% by mid-decade by increasing top-end vehicle sales by 60% by 2026 from 2019. Further out, Mercedes-Benz’s line-up will become fully electric by 2030 where markets allow. While specific product details were not discussed, the automaker did say that it will categorize its vehicles as Top-End Luxury, Core Luxury or Entry Luxury.
Going for the gold: Top-End Luxury vehicle strategy
Top-End Luxury will be comprised of Mercedes-AMG and Mercedes-Maybach vehicles, as well as the EQS, EQS SUV, S-Class, G-Class, GLS and limited editions. To accentuate the point, Mercedes Benz unveiled the Vision AMG, an all-electric Mercedes-AMG concept based on the dedicated AMG.EA architecture that will be used for future fully electric AMG models. The Vision AMG’s drivetrain was developed entirely in-house, including its motor, which was developed by Mercedes-Benz subsidiary YASA.
The automaker also confirmed the arrival of a G-Class electric vehicle, while also saying expansion of the line was being considered. Considering the success of upmarket SUVs, this is hardly surprising.
Mercedes-Benz will also expand its limited editions and collaborations, beginning with a 150-unit run of the Limited Edition Maybach by Virgil Abloh, a Mercedes-Maybach S-Class designed by black Amercian fashion designer Virgil Abloh before his death from cancer in December 2021 at the age of 41. It will be followed by a limited run of “Mythos Series” vehicles, although the company offered no details of what they might be, other than limited in number.
“Mercedes-Benz has the good fortune to have multiple iconic products and brands at the upper end of its portfolio — such as the S-Class, the SL, the G as well as the AMG and Maybach brands. We see great potential here to expand our Top-End portfolio with even more fascinating products for our customers,” said CEO Källenius.
The lion’s share of sales: Core Luxury & Entry Luxury
Just below Top-End Luxury are Mercedes-Benz’s Core Luxury models, aka the ones that provide the majority of its volume: the Mercedes-Benz C-Class and E-Class. The automaker is accelerating this segment’s electrification with the release of the E-Class next year, as well as releasing another ellectric vehicle for the Chinese market.
Most notably, Mercedes-Benz is drastically reducing its Entry Luxury line-up of vehicles from seven to four, although they didn’t say which vehicles were getting the axe. When they arrive, they will use a new Mercedes-Benz operating system, which will be launched along with the new vehicles on the company’s new compact MMA platform in 2024.
Undoing a misguided legacy
By concentrating its strategy at the upper end of the market, just as Tesla does, and increasing the number of electric models, Mercedes-Benz hopes to topple Tesla as the world’s most valuable automaker, particularly since spinning off its truck division as Daimler Trucks in December 2021. The Stuttgart-based automaker has a $69.8 billion market cap, a far cry from Tesla’s $736 billion valuation.
The move upmarket comes as a repudiation of the strategy forged former Daimler-Benz CEO Jürgen Schrempp, who pushed the automaker into lower-priced segments internationally, a strategy continued under his successor, former Chrysler CEO Dieter Zetsche.
While Mercedes-Benz typically sold such vehicles in Western Europe, their availability expanded to the U.S. with such vehicles as the A-Class and GLA crossover.