Mercedes Forced to Cut Costs

Mercedes-Benz closed 2024 with a significant drop in sales, with net profit declining by 28.4% year-on-year to €10.4 billion ($10.9 billion), and revenue dropping by 4.5% to €145.6 billion ($152.9 billion). A major challenge for the automaker is the weakening demand for electric vehicles, whose sales plummeted by 23%, while sales also fell by 8.5% in China, once a key market for the German premium segment. Earnings before interest and tax (EBIT) dropped by 30.8% to €13.6 billion ($14.3 billion), with profit margins narrowing mainly due to higher production costs and strong competition from Chinese manufacturers.

Alongside these results, published on February 20, 2025, Mercedes announced cost-cutting measures and a partial return to internal combustion engine vehicle production. According to Reuters, the company aims to reduce costs by 10% in the next two years and double the drop by the end of the decade. During this period, the company plans to launch 19 new combustion engine models and only 17 fully electric vehicles. However, its strategy targeting more demanding customers and the sale of fewer but more expensive models remains unchanged. To reduce risks associated with global trade tensions, the company plans to expand its factories in the U.S. and China to avoid high tariffs. After the release of its financial results and outlook, Mercedes-Benz shares dropped by nearly 4% during Thursday and Friday trading on the Frankfurt Stock Exchange (ETR).*

Source: Investing.com*

These unflattering figures indicate that even the premium car segment is not immune to market turbulence. Chinese competitors such as BYD and other domestic brands show that the global automotive industry is changing – and German giants are still searching for the right response. While Mercedes tries to remain optimistic, its outlook for 2025 is clear: further sales decline, lower margins, and pressure on efficiency. [1] Even though new models could bring a rebound, the question remains whether this will be enough at a time when the market is changing faster than traditional players are accustomed to.

European Market Shows Signs of Improvement

Despite the struggles of electric vehicles in Europe last year, early data for this year suggests improvement. For instance, Germany recorded a more than 50% year-on-year increase in sales of fully electric vehicles in January, according to data from the German Federal Motor Transport Authority (KBA). According to the European Free Trade Association (EFTA), sales of electric vehicles in the EU and the UK increased by 21% year-on-year in January. The European market could be further supported this year by the emission targets, which have come into effect and could encourage manufacturers to accelerate their transition to electric vehicles. Interestingly, although Chinese competition remains a significant issue for European automakers, growth there was not as sharp, standing at only 12%. This could be attributed to the holiday period, as sales tend to slow during the Chinese New Year celebrations.

Tesla Begins Facing Problems in Europe

In contrast to European manufacturers, American Tesla saw a sharp decline in electric vehicle sales in Germany (59%) and France (63%) last month, with a 13% drop across the EU. The reasons for the low interest could also be of a moral nature, as Tesla CEO Elon Musk has become fully engaged in politics, expressing support for far-right European parties, and his daily statements have sparked controversy.

Conclusion

Mercedes-Benz faces a challenge that affects not only the company but the entire European automotive industry. While signs of improvement are emerging in Europe, particularly in electric vehicle sales, the outlook for Mercedes remains uncertain. With declining sales, narrower margins, and increased pressure on efficiency, 2025 is set to be another tough year. The question remains whether new models and expanding production to the U.S. and China will be enough to help the company navigate the changing conditions.

* Historical data is not a guarantee of future performance.

[1] Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on current economic conditions that may change. These statements are not guarantees of future performance. Forward-looking statements by their nature involve risk and uncertainty because they relate to future events and circumstances that cannot be predicted and actual developments and results may differ materially from those expressed or implied by any forward-looking statements.

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Sources:
https://group.mercedes-benz.com/dokumente/investoren/berichte/geschaeftsberichte/mercedes-benz/mercedes-benz-factsheet-q4-2024.pdf
https://www.reuters.com/business/autos-transportation/mercedes-benz-earnings-down-by-40-car-division-2024-2025-02-20/
https://fortune.com/europe/2025/02/20/mercedes-cut-costs-profits-dip-plunge-ev-sales/
https://www.euronews.com/business/2025/02/12/global-electric-vehicle-sales-for-january-reveal-us-driven-spurt
https://www.dw.com/en/germany-tesla-sales-plunge-almost-60-in-january/a-71533790
https://www.aol.com/tesla-sales-europe-sliding-thats-123257585.html