Is Mercedes-Benz Group a Buy Despite EV Challenges and Strategic Reinvention?

The Mercedes-Benz Group (DB:MBG) stands at a crossroads in 2025, navigating the dual pressures of a rapidly evolving electric vehicle (EV) market and a strategic pivot toward luxury electrification. For investors, the question of whether the stock represents a compelling opportunity hinges on two critical factors: its undervalued financial metrics and its ability to execute a high-stakes reinvention in the premium EV segment.

Valuation Attractiveness: A Discounted Premium Player

Mercedes-Benz Group's 2025 financial metrics paint a picture of a company trading at a significant discount relative to its peers. The trailing P/E ratio of 8.9x is sharply below the industry average of 18.7x and the peer average of 19x, suggesting the stock is undervalued despite its dominant position in the luxury automotive sector. This discount is further amplified by the company's EV/EBITDA ratio of 7.1x, which reflects a moderate valuation for a firm with robust earnings potential. Additionally, the Price-to-Book ratio of 0.64 indicates that the company is trading at a material discount to its net asset value, a metric often favored by value investors. These metrics collectively position Mercedes-Benz as a compelling candidate for investors seeking exposure to a high-quality business at a historically attractive price point.

Strategic Reinvention: Luxury-First Electrification

The company's strategic pivot to luxury electric vehicles (EVs) is a deliberate response to shifting market dynamics. By 2025, Mercedes-Benz aims to achieve an xEV (battery and plug-in hybrid) share of 20–22% for its passenger car segment and 8–10% for vans, signaling a focused push into electrification. This strategy is underpinned by a "luxury-first" approach, with AMG performance models playing a pivotal role in offsetting softer demand for mainstream EVs like the EQS and EQE according to analysis.

Key to this transition is the development of three electric-only architectures-MB.EA, AMG.EA, and VAN.EA-set to launch in 2025, alongside partnerships with Shell and SilaNano to enhance battery technology and charging infrastructure. These initiatives align with broader industry trends, as the global luxury EV market is projected to grow at a 16.13% CAGR, reaching $463.27 billion by 2030.

Notably, Mercedes-Benz reported a 22% year-over-year increase in BEV sales in Q3 2025, driven by models like the CLA electric, underscoring early traction in its electrification efforts.

Competitive Challenges and Operational Headwinds

Despite these strategic strides, Mercedes-Benz faces significant headwinds. Q3 2025 results revealed a 70% decline in operating profit, attributed to restructuring costs, trade tensions, and U.S. tariffs on European vehicles. The company also warned of a projected ninth consecutive quarterly revenue decline, with U.S. sales dropping 11.8% year-over-year. Competitors like BMW are gaining ground through hybrid strategies and product diversification, highlighting the risks of overreliance on pure EVs.

However, the company's long-term roadmap remains ambitious. By 2030, electrified vehicles are expected to account for 50% of sales, supported by a planned 18 new or revised models in 2026. This aligns with the broader industry shift toward premium EVs, where Mercedes-Benz's brand equity and technological capabilities could provide a durable advantage.

Is It a Buy? Balancing Risks and Rewards

Mercedes-Benz Group's valuation metrics suggest a compelling entry point for long-term investors willing to navigate near-term volatility. The stock's low P/E and P/B ratios, combined with its strategic alignment with the luxury EV growth trajectory, create a margin of safety that is rare in the premium automotive sector. However, execution risks remain high, particularly in markets like China and the U.S., where supply chain disruptions and competitive pressures could delay profitability.

For investors with a 3–5 year horizon, the company's disciplined pivot to luxury electrification-backed by robust R&D investments and strategic partnerships-positions it to capture a meaningful share of the $463 billion luxury EV market by 2030. While the path is fraught with challenges, the combination of undervaluation and strategic clarity makes Mercedes-Benz Group a buy for those comfortable with the risks of a transformative phase in the automotive industry.