Three reasons why Mercedes-Benz is stuck in a crisis

The auto crisis has reached Mercedes-Benz. Profit slump, sales decline, cost-cutting - the prosperous years are over. On Thursday, the automaker wants to present its business figures for 2024. It is clear: The DAX company is lagging behind its own high standards. What are the reasons for this?

China

"China was the growth engine," says auto analyst Frank Biller from Landesbank Baden-Württemberg (LBBW). More than a third of all Mercedes passenger cars went to China in recent years. In 2024, sales dropped significantly by seven percent. "There were particularly significant declines in the higher-end vehicle segment," says Biller. 

But it is especially with these cars that high profits can be achieved. Sales in the "Top-End" segment - which includes Mercedes-Maybach, the S-Class, or the sports car subsidiary AMG - fell by a total of 14 percent last year, which Mercedes attributed, among other things, to market conditions in China.

In China, it was mainly those customers who purchase premium vehicles that disappeared due to the real estate crisis, says Stefan Reindl, head of the Geislingen Institute of Automotive Economics. Additionally, the competitive intensity from domestic brands has increased enormously there.

Luxury

Mercedes has never been a mass manufacturer, says LBBW analyst Biller. He sees Mercedes's focus on premium and luxury vehicles as appropriate. However:

"That Mercedes positions itself as a pure luxury manufacturer, I do not find plausible." While there are models that can claim the luxury attribute for themselves, with the current profit margins, Mercedes is "far from being a luxury manufacturer."

In the third quarter of the past year, the adjusted return on sales for passenger cars was a meager 4.7 percent. In the same quarter of the previous year, it was still at 12.4 percent.

"Mercedes loses the scaling effect through the luxury strategy," says automotive expert Ferdinand Dudenhöffer.

The fixed costs cannot be spread over larger volumes. The risk of a luxury strategy is that the portfolio is not so balanced. If things do not go well in that segment, one falls directly relatively hard, says Dudenhöffer.