Mercedes-Benz is embarking on a product offensive with an extensive lineup of new models after experiencing disappointing sales of its first generation of battery-powered cars. The luxury car manufacturer plans to focus more on its profitable combustion-engine vehicles while still offering electric versions of its entire lineup by the end of this decade. Chief Executive Officer Ola Källenius explained that top-level buyers are still gravitating towards the company’s high-tech combustion-engine cars, emphasizing the need to keep them competitive in the market.
However, Mercedes has faced challenges in the electric vehicle (EV) sector, falling behind its rival BMW, whose electric models have gained popularity with buyers due to their more affordable prices and appealing designs. In the first quarter, Mercedes’ battery-vehicle sales declined by 9% to 50,500 units, while BMW’s deliveries surged to 82,700 vehicles. One specific disappointment was the EQS sedan, which drew unfavorable comparisons to a jellybean and failed to impress buyers in China who value spacious back seats and iconic status-symbol details.
As a result of these setbacks, Mercedes has adjusted its electrification plans and now aims for roughly half of its sales to be electric vehicles by 2030, instead of selling only EVs where possible. This adjustment aligns with the actions taken by competitors like Audi and Jaguar Land Rover, who have also revised their EV strategies. Even EV leader Tesla has experienced slumping deliveries, indicating that the demand for electric vehicles is not as robust as expected.
To overcome the challenges and stimulate demand, Mercedes plans to make costly design upgrades. They will introduce a face-lifted version of the EQS next year, featuring improved back-seat comforts and the return of the iconic three-pointed star hood ornament. The company also intends to launch new models built on new underpinnings, starting with the entry-level CLA coupe and later the GLB SUV in 2023. Additionally, Mercedes will introduce a compact electric version of the G-Wagon in 2026.
While combustion-engine cars are expected to generate higher profits in the near future, Mercedes is actively seeking ways to reduce costs. This includes efforts to save on purchasing, fixed costs, and non-essential spending. One potential source of additional funds is the sale of Mercedes’ remaining stake in Daimler Truck, which was spun off in 2021. If the carmaker decides to sell its 35% holding, it could potentially free up €10.5 billion.
Mercedes is also adjusting its battery plant plans due to slowing EV demand. Two out of three European battery plants, which were part of a joint venture with Stellantis and TotalEnergies, have been put on hold. The pause is to allow for a reevaluation of using lower-cost cells that align with the rate of EV adoption.
In addition to market challenges, Mercedes faces geopolitical tensions that further complicate its shift to EVs. The European Union is set to impose provisional tariffs on China-made battery cars, potentially raising duties by up to 48%. This could significantly impact Mercedes’ Smart models, which are produced in China through a joint venture with Geely and imported to Europe on a large scale. Källenius expressed concern over triggering a trade conflict and the potential impact on open markets.
Mercedes-Benz’s upcoming product offensive demonstrates the company’s commitment to meeting the evolving demands of luxury car buyers. By investing in both combustion-engine vehicles and electric models, Mercedes aims to maintain its position as a leader in the luxury car market while gradually transitioning towards a more sustainable future. The adjustments made to their electrification plans and the focus on cost-saving measures reflect a pragmatic approach to navigate the challenges and uncertainties surrounding the global adoption of electric vehicles.
