According to several sources, primarily German, Mercedes is quietly shifting its model strategy. According to the German newspaper Handelsblatt, the ‘L-word’ (L for Luxury) has now become taboo, and the Stuttgart-based manufacturer is now reshifting its focus to ‘premium in all segments’.
About three years ago, Mercedes announced that it would focus more on the upper end of the car market, aiming to earn more by producing fewer cars. The luxury segments were favored and the lower segments, A- and B-Class in Mercedes speak, were slowly to be abandoned in the years to come.
Profit margins were more critical than the number of cars sold, said CEO Ola Källenius, and by 2026 Mercedes-Benz had to extract up to 60% of total revenue from the upper market luxury classes, in particular AMG and Maybach. Although Mercedes has steadily increased the importance of its luxury portfolio, it has only accounted for 35% of total turnover, rather than the 60% planned for next year.
Worse, the envisaged double-digit profit margins of 13-15% are far off, with a forecasted 2025 profit margin of 5.7%. Meanwhile, the importance of the A- and B-Class segments, which had to fall to around 20% in 2026, still represents more than 25% at the moment.
Premium in all segments
That’s why Mercedes seems to adapt its strategy. The arrival of the new CLA and the positive reception it received in the media and from customers has convinced the Stuttgarters again that one can make money in every market segment, provided one has the right products for them.
Of course, Mercedes will never offer ‘cheap’ cars, but ‘premium in all segments’ is now the new adagio. At the Munich motor show in September, there was even talk of a new, small A-Class. And one has to take into account that the German car industry, or the European car industry as a whole, is suffering a lot these days, with the energy transition moving too slowly, the threat of American tariffs, and production costs that are too high compared to some (primarily Chinese) competitors.
And especially German premium brands, which were very well established in China, their most important market worldwide, now face many more difficulties selling their products, as they are confronted by Chinese newcomers, especially in the electric car segment.
Less ambitious regarding electrification
There was a time when Mercedes was forecasting that its entire production would be electric, or at least profoundly electrified, by 2030. This ambition is gone, as will be the special designs and names the manufacturer created for its electric portfolio. Gone are the rounded noses, the not-so-easily recognizable Mercedes look, and the EQ badges.
New Mercedes cars will look almost the same, regardless of their drive, and will be easily recognizable by the classic ‘Mercedes nose’ again. Pure electric versions will be called the same as the ICE variants, with only the somewhat clumsy appendage ‘with EQ Technology’.
Meanwhile, Källenius has implemented a stringent cost-cutting program that has resulted in a 20% reduction in fixed costs over five years and aims to add another 10% by 2027.
Whether the current turmoil has weakened Källenius’s position at Mercedes-Benz remains to be seen. In 2023, his contract as CEO was extended until 2029, but we all know that recent examples elsewhere show things can change quickly, even at the top.
