Mercedes-Benz (stock exchange code: MBG) today hosted a strategy update on the Côte d’Azur. This ‘Economics of Desire’ event outlined the future of Mercedes-Benz as a dedicated pure-play luxury car company and provided details of its strategic course. The company will focus even further on luxury, elevate its product portfolio, accelerate its path to a fully electric future and target structurally higher profitability.
Mercedes-Benz will recalibrate its product portfolio, allocating more than 75% of its investments to develop products for the most profitable market segments. As part of this sharpened strategy, Mercedes-Benz aims to grow the sales share of its Top-End vehicles by around 60% by 2026 versus 2019 and intends to achieve higher quality growth and a further significant increase in profitability and resilience, striving for an operating margin target of approximately 14% by mid of the decade in favorable market conditions.
This greater focus on the top end of the market should enable the company to deliver a strong financial result even under more challenging market conditions. The company’s strategic decision to become fully electric by 2030 – wherever market conditions allow – and the ambition to become CO2-neutral by 2039 are integral elements to enhance the connection between luxury and sustainability.
“What has always been the core of our brand is now also the core of our strategy: the luxury segment. We are further sharpening the focus of our business model and product portfolio in order to maximize the potential of Mercedes-Benz even in challenging conditions. At the heart of that is our goal to build the world’s most desirable cars,” says Ola Källenius, Chairman of the Board of Management of Mercedes-Benz Group AG.
Enhanced and elevated product mix as pure-play company – future focus on three product categories
The increased focus on luxury follows rising customer demand in this segment. In 2021, the Mercedes-Benz S-Class posted an increase of 40%, while Mercedes-AMG and Mercedes-Maybach likewise set new records. Mercedes-Benz intends to use its brand’s power even more effectively in a growing luxury market. Going forward, the company anticipates disproportionate growth in the Top-End vehicle segment and will use this as an opportunity to reconfigure the structure of its product portfolio.
In future, Mercedes-Benz will concentrate on three product categories: Top-End Luxury, Core Luxury and Entry Luxury. In the Top-End Luxury segment the product portfolio encompasses:
- all vehicles from the Mercedes-AMG and Mercedes-Maybach brands
- the Top-End models from Mercedes-EQ, including the EQS and the EQS SUV
- the Mercedes-Benz S-Class and G-Class models as well as the full-size luxury GLS
- limited edition models and exclusive collaboration vehicles
On the evening of May 19, the Vision AMG will be unveiled, and will offer an insight into the all-electric future of the performance luxury brand Mercedes-AMG – based on the dedicated AMG.EA architecture for fully electric AMG models. All of the Vision AMG’s drivetrain components are developed entirely from scratch: not only the platform itself, but also the dedicated high-performance high-voltage battery and the revolutionary drive technology. The powerful heart of the Vision AMG is its innovative Axial Flux Motor developed by Mercedes-Benz’ wholly-owned subsidiary YASA. With its compact and lightweight design it delivers substantially more power than conventional electric motors.
Mercedes-Maybach is expanding its product offering in the Top-End segment, led by the Mercedes-Maybach EQS SUV, which is scheduled for market launch next year. In addition, the preview of a Mercedes-Maybach SL reveals more about the future opportunities of the company’s most exclusive brand.
Electrification across the board is also evident in the legendary “G”. The all-electric G-Class will be the first Mercedes-Benz vehicle to feature advanced battery cell chemistry from Sila Nanotechnologies as an option. Furthermore, steps to expand the G product family are being evaluated.
Mercedes-Benz will also expand with limited editions and exclusive collaboration vehicles. At the very top end of the product portfolio is an exclusive edition of the Mercedes-Maybach S-Class, known as the Limited Edition Maybach by Virgil Abloh. Conceived and designed by the designer Virgil Abloh before his unexpected and untimely passing, these cars will be produced to celebrate the extraordinary creativity and talent. Only 150 of these strictly limited edition vehicles will be built, making them a highly desirable collectible.
Mercedes-Benz is planning further exclusive collector editions under the Maybach brand. Mercedes-Benz also announced a new program of ultra-exclusive collector cars, to be known as the “MYTHOS Series”. These cars – produced in selected numbers – will be made available exclusively to the most dedicated enthusiasts and collectors of Mercedes-Benz. Every car of the MYTHOS series will aim to earn its place alongside the brand’s historical pantheon of greats.
“Most luxury companies build their portfolio on the basis of one or two true icons. Mercedes-Benz has the good fortune to have multiple iconic products and brands at the upper end of its portfolio – such as the S-Class, the SL, the G as well as the AMG and Maybach brands. We see great potential here to expand our Top-End portfolio with even more fascinating products for our customers,” commented Ola Källenius on the new portfolio strategy.
Core Luxury stands for the core of the brand, currently encompassing the Mercedes-Benz C-Class and E-Class model ranges and their derivatives, which typically have the highest sales volumes. With the Core luxury segment, the company plans to go electric on an accelerated timescale, leveraging the EVA2 platform (EQE, EQE SUV) and then MB.EA architecture. The new E-Class comes to market next year and will point the way forward for the segment. This product category will also grow through the addition of a further model based on the EVA2 platform and designed specifically for the China market.
The new entrance point of the Mercedes-Benz portfolio is being redefined with the next generation of vehicles. In the Entry Luxury segment, Mercedes-Benz will reduce the number of model variants from seven to four while significantly elevating the technological substance of these products. For instance, the new MB.OS (Mercedes-Benz Operating System) will be launched in 2024 with the next compact MMA platform. The first product on the new platform, will showcase the way forward. These changes will reposition Mercedes-Benz in the segment, honing in more precisely on the wishes of discerning customers.
Redesigning and repositioning Mercedes-Benz for structurally higher profitability
In October 2020, Mercedes-Benz provided new financial objectives as part of its new strategic course. These featured an absolute reduction of fixed costs, a substantial improvement in pricing discipline and targeted stronger profitability in all economic weather conditions. Since then, Mercedes-Benz has moved fast to deploy its strategy and it has delivered financial results that have significantly exceeded its targets. While aided by some favorable market conditions, these results have demonstrated the effectiveness of the new strategic path and the earnings power of the Mercedes-Benz brand. This sets the course to further leverage positive development of average selling prices across all segments.
With the progression and elevation of its luxury strategy, Mercedes-Benz is now targeting a further increase in structural profitability, striving for an operating margin of approximately 14% by mid of the decade in favorable market conditions. The company aims for margins of approximately 8% in very unfavorable, approximately 10% in unfavorable and approximately 12% in fair market conditions. Unforeseeable geopolitical or macro-economic shifts and raw material premises obviously cannot be part of this target grid, but Mercedes-Benz is redesigning the company to ensure stronger profitability even in a tougher environment. The focus continues to be on strong cash generation and significant cash returns to shareholders.
Luxury customer experience – seamless access to all channels and with all senses
The customer is the focal point. This has always been rule number one for Mercedes-Benz and it will gain even greater emphasis going forward. The purchasing experience and the customer journey play a central role in the luxury segment. With this in mind, the company has established new marketing and sales channels – online and offline – and has planned further measures which offer a seamless customer journey. Excellent ease-of-use pairs with high experiential values at every touchpoint – starting with digital communication. The company assumes that by 2025, more than 80% of sales in Europe will be direct sales.
Bundling equipment packages simplifies configuration and reduces cost
When configuring a vehicle in future, the customer will be able to choose from a number of different equipment packages based on preference and regional demands. This simplifies and speeds up online configuration and also leads to a faster and higher level of availability for the customer as well as a significant complexity reduction for the company. The grouping of option packages is expected to also have a positive effect on residual values as a higher level of equipment is also available for base variants.
In parallel, Mercedes-Benz is optimizing the settings at physical sales locations. Prime examples of this include the AMG Store in Dubai, which opened its doors in December 2021, and the Maybach Atelier in Shanghai, which will open in a few months. Personal customer interaction remains the backbone of the brand’s presence and sales. The real-life experience is crucial for Mercedes-Benz customers, providing the opportunity for them to see a new vehicle for themselves, to experience it with all their senses and to drive it.
Strategic pillars provide clear orientation
Mercedes-Benz aims to build the world’s most desirable cars. At the end of 2020, the company presented its refined strategy, laying the groundwork for profitable growth in the luxury segment. Sustainability, Integrity and Diversity form the foundation of this strategy.