In 2024, can Mercedes-Benz still "lie down and win" in China?

Written by Ma Xiaolei

Editor / Zhou Zhou

Design / Division

来源/Autouse,作者:Nathan Eddy

On February 22, Mercedes-Benz announced its 2023 financial results, which showed that the group's turnover was 153.2 billion euros (150 billion euros in 2022), a year-on-year increase of 2%, EBIT (earnings before interest and taxes) was 19.7 billion euros (20.5 billion euros in 2022), and a profit margin of 12.6%.

In terms of sales volume, in 2023, Mercedes-Benz passenger cars and light commercial vehicles will sell 2,491,800 units, a year-on-year increase of 1.5%, pure electric models will sell 240,700 units, a year-on-year increase of 61%, and pure electric light commercial vehicle sales will be 22,700 units, a year-on-year increase of 51%.

Kanglin Song▼

Given the global economic situation and the uncertainty of the automotive market, Mercedes-Benz expects turnover in 2024 to be in line with 2023, EBIT is expected to be slightly lower than the previous year, passenger car sales will be in line with 2023, and automotive margins will be as low as 10%.

Slowing economic growth, supply chain bottlenecks and trade tensions between China and the United States and the European Union have also weighed on the outlook for 2024, the company said.

Ola Kallenius, Chairman of the Board of Directors of Mercedes-Benz Group AG, will have to overcome several challenges in 2024, including slowing growth in China, rising development costs and global economic uncertainties.

China is no longer a profitable market

Kang Linsong may have to go against the wind in China this year.

Over the years, Mercedes-Benz has been making steady profits in the Chinese market, and its sales have maintained double-digit growth year after year. But those good old days are gone.

In 2023, Mercedes-Benz passenger car sales in China fell by 2% to 737,200 units. This number has stagnated since reaching a sales peak of 758,000 units in 2020. Mercedes is reluctant to join the price war, preferring to lose sales.

Frank Schwope, an auto industry academic, said China was no longer a surefire market, and even high-end manufacturers had to cut production.

In 2024, Mercedes-Benz expects to launch 15 new models in China. In terms of continuing to promote the transformation, Mercedes-Benz has now obtained a road test license for conditional autonomous driving (Level 3) highways in Beijing. In addition, Mercedes-Benz has launched the first stations of the Supercharger network in China, the United States and Germany.

The demand for Mercedes-Benz fuel vehicles is still strong, but the growth rate of electric vehicles is slowing.

Sales of the EQS and EQE fell short of expectations. One reason for this may be the exorbitant price, with the EQE SUV starting at 83,500 euros and the Maybach EQS SUV starting at more than 200,000 euros, making it the most expensive model in Mercedes' entire portfolio. Currently, only more affordable compact models such as the EQA or EQB can achieve significant sales.

Reduce costs

Significantly reducing development costs by 2025 is one of the goals shared by Kang Linsong and CFO Harald Wilhelm, but at the current pace, Mercedes-Benz is still far from achieving this goal.

In its most recent quarterly report, Mercedes-Benz announced significantly higher R&D investments than the previous year's figures, with new EV platforms such as MB.OS and MMA, the internal operating systems, alone generating billions of dollars in additional expenses. In 2023, these investments are expected to total around 10 billion euros. In 2022, this figure was 8.5 billion euros.

Markus Schaefer, Head of R&D, has streamlined the product portfolio to the maximum and reduced the complexity of R&D to a minimum. For example, the number of next-generation compact cars based on the MMA platform has been reduced from seven to four, the A-segment and B-segment cars will be phased out, plug-in hybrids and manual transmissions in addition to diesel vehicles have also been phased out in the entry-level portfolio, and engine development has been outsourced to Geely.

Analyst Schwop said: "Collaboration with other groups helps to reduce the high development costs during the transition phase of electric vehicles. "Despite this, investment costs are growing.

Kanglinsong has launched the final step of a comprehensive sales reform in Germany, which will sell all Mercedes-Benz stores in Germany. "Reducing the group's directives and freedom of movement is important for sales," Schwope said. ”

Kang Linsong has repeatedly complained internally about the poor sales performance of the company's directly operated stores. It is estimated that the sale could generate up to 2.5 billion euros in revenue if buyers can be found for more than 60 directly operated stores.

Since Mercedes-Benz's labor contract is signed until the end of 2029, about 8,000 employees are involved in the packaged sale of the directly-operated store, and these employees need to agree to the transfer of business. Employee representatives, on the other hand, were adamantly opposed and put forward more stringent conditions. The more favorable the conditions are for employees, the less favorable it is to find buyers.

To improve profitability, Mercedes is focusing on its most profitable models, such as the S-Class, G-Class, AMG sports car, and Maybach EQS SUV, while mid-range cars, especially entry-level models, may not have as strong growth in the long run.

However, now the market is changing, and an unprecedented price war is emerging, especially for electric vehicles. In this complex situation, Kang Linsong must be careful not to take the luxurious route he insists on backfiring.

Mercedes clearly can't stay out of this price war entirely. It remains to be seen whether it will be wise to keep the barriers to entry for the Mercedes-Benz brand in the long run.

Analyst Schwope said that it is important to position Mercedes-Benz as a high-margin luxury car manufacturer, but if it is not necessary, especially to attract new customers and first-time car buyers, the lower-segment models should not be abandoned.

"I am confident that in a few years at the latest, the group will once again be strongly attracted to buyers looking for entry-level models," Schwope said. ”

Slowing down the transition to electrification

Mercedes-Benz has postponed its 2025 target of 50% electrified model sales, and will continue to produce and improve new combustion engine models.

However, Mercedes-Benz's decision was strongly recognized by the capital market, and Mercedes-Benz's share price rose by 5.9% after the announcement.

"In the future, we are ready for the next generation of products and platforms, and Mercedes-Benz will always be at the forefront of the industry," said Kang. ”

Kang Linsong believes that it will be many years before the cost of electric vehicles is on par with traditional cars. The luxury brand will continue to renew its fuel vehicles until the 2030s.

Mercedes-Benz has warned that BEVs will remain more expensive than gasoline vehicles in the coming years as luxury automakers prepare for cooling demand for EVs.

Kang Linsong said at the end of 2023 that even Europe, which is heavily promoting electrification, cannot guarantee that it will be ready for a pure electric vehicle lineup by 2030, and multiple studies have shown that consumers are slow to buy electric vehicles for a range of reasons.

The company expects the share of electric vehicles and plug-in hybrids to be roughly flat at 19 to 21 percent this year. Mercedes-Benz is banking on the launch of next-generation electric vehicles after 2025, which is expected to reduce costs by 30%.

Automakers are becoming more cautious about battery electric vehicles. According to BloombergNEF, EV sales will see the slowest growth rate since 2019 this year, further fueling competition. At the end of 2023, Mercedes-Benz rival Audi said it was scaling back the rollout of electric vehicles.