Market Analysis

Mercedes-Benz Targets Efficiency Gains with New Cost-Cutting Strategy

Amos Simanungkalit · 20 Feb68.3K Views

Image Credit: Reuters

Mercedes-Benz unveiled a new cost-cutting initiative on Thursday aimed at boosting sales and margins as it grapples with intense competition. The German automaker also forecasted a significant decline in earnings for 2025.

The company's car division saw a 40% drop in earnings for 2024, largely due to a slump in sales in key markets like China and Germany. Demand in Europe has remained below pre-pandemic levels, and Chinese consumers have increasingly turned to more affordable domestic electric vehicles amidst economic uncertainty.

Mercedes-Benz set a target for a double-digit return on sales but warned that it expects a modest 6-8% return in its car division for this year.

These goals represent a major downward adjustment from the more optimistic outlook the company presented in 2022, which projected an adjusted return on sales of up to 14% in favorable conditions and no less than 8% during tougher times.

The outlook for European carmakers remains bleak, facing various challenges such as stricter carbon emission standards, rising trade tensions with the U.S., and intense competition from Chinese electric vehicle startups. Carmakers like Volkswagen and others have also announced significant cost reductions due to uncompetitive energy and labor costs in the region.

Despite the overall downbeat forecast, Renault reported a record operating profit for 2024, driven by lower costs and strong new product launches.

Mercedes-Benz, meanwhile, plans to cut production costs by 10% by 2027, building on an ongoing cost-reduction plan started in 2020 that aims for a 20% reduction between 2019 and 2025, with 15-16% already achieved. The company also predicts a lower sales forecast for 2025, with unit sales expected to fall short of the 1.98 million vehicles sold in 2024, which could disappoint investors and labor groups who had hoped for a 2 million car target to fully utilize production capacity.

In response to the uncertain global landscape, CEO Ola Kaellenius emphasized the need to make Mercedes-Benz "faster, leaner, and stronger" to ensure its future competitiveness. The board also proposed a dividend of 4.30 euros per share, down from 5.30 euros in 2023.