Mercedes-Benz China: A Cost-Cutting Strategy Amidst Intense Competition

Mercedes-Benz Group AG has announced plans to cut 15% of its workforce in China, according to a Bloomberg News report. This significant move comes as the luxury automaker grapples with intense competition and a slowing Chinese market. The layoffs, primarily impacting the sales and automotive finance divisions, are part of a broader strategy to make the company leaner, faster, and stronger in the face of challenging market conditions.

The decision to reduce the workforce by 15% is a clear indication of Mercedes-Benz's commitment to improving efficiency and maintaining profitability in the Chinese market. The company's financial report on February 20 revealed a 4.5% decline in global revenue for 2024, with China, as the company's largest single market, seeing a 6.7% drop in sales to 714,000 vehicles. The layoffs are expected to help the company revive sales and better compete with rivals like BYD and Tesla in the region.

Mercedes-Benz's cost-cutting efforts in China also include redesigning its performance evaluation system for local employees and cutting production lines. The company will soon set new goals in a program of objectives and key results (OKR), which will first be rolled out at its research and development center in Shanghai. This move aims to put pressure on low performers to improve or leave. Additionally, Mercedes-Benz is considering cutting production lines at its two joint factories with manufacturing partner BAIC on the outskirts of China's capital.

The German automaker's cost-cutting measures are part of a larger effort to improve efficiency and maintain profitability in the face of fierce competition and weaker demand in China. The key gauge of profitability slid to 4.7% in the third quarter, undershooting the company’s minimum target of 8% and well below the 12.4% level a year ago. Mercedes-Benz's results contrasted sharply with Tesla Inc., which saw its shares surge the most in more than three years this week after the company posted surprisingly strong earnings and rising profit margins.



As Mercedes-Benz China faces increasing competition from local and international automakers, the company is taking a prudent view about market evolution going forward and stepping up all efforts on further efficiency increases and cost improvements across the business. The company's commitment to cost-cutting and restructuring plans is crucial for maintaining profitability and remaining competitive in the Chinese market. By focusing on operational efficiency, strategic partnerships, and investment in R&D, Mercedes-Benz aims to strengthen its competitiveness and resilience in the face of challenging market conditions.