Mercedes-Benz: Navigating Turbulent Waters with Cost-Cutting Measures

Mercedes-Benz, the iconic German automaker, has announced a comprehensive cost-cutting program that includes job cuts, as reported by Wirtschaftswoche. The company, facing intense competition in the electric vehicle (EV) market and rising energy and labor costs, is taking decisive action to secure its future competitiveness.

The German automaker has experienced a significant decline in battery electric vehicle sales, with a 23% drop in 2024, delivering only 185,100 units worldwide. This downturn has prompted the company to revise its electrification goals, aiming for EVs to constitute up to 50% of total sales by 2030, a target initially set for 2025. To combat the profit decline, Mercedes-Benz is focusing on launching more combustion-powered vehicles (19) than EVs (17) by 2027 to maximize margins.

High energy and labor costs have forced Mercedes-Benz to take measures to reduce its fixed costs. In 2024, the company announced a 10% cut in production costs by 2027 to secure its future competitiveness. This includes reducing global production capacity from 2.5 million to approximately 2.2 million vehicles and doubling its manufacturing presence in European low-cost countries from 15% to 30%. Additionally, the company is relocating some production to countries where it's more profitable to operate, such as Hungary, where costs are 70% lower than in Germany.

The combination of weak demand, particularly in China, and the threat of tariffs from the U.S. has further pressured Mercedes-Benz to cut costs. The company expects its automotive margin to fall to 6.0% in 2025, down from 12.6% in 2023. To mitigate the impact of potential tariffs, Mercedes-Benz is considering shifting more operations toward the U.S. to avoid them.



The company's workforce has been significantly impacted by these cost-cutting measures. Mercedes-Benz has reduced its workforce by 11%, amounting to 15,000 jobs, with 10,000 of those being white-collar positions. This has contributed to a 19% reduction in fixed costs compared to 2019. The company is also planning to cut up to 15% of its workforce in China, primarily impacting its financing and sales units.

To support affected employees, Mercedes-Benz is implementing a series of cost-cutting measures and restructuring efforts. These include redesigning the performance evaluation system for local employees to put pressure on low performers to improve or leave, cutting production lines at its two joint factories with manufacturing partner baic on the outskirts of China's capital, and launching a new program of objectives and key results (OKR) to set new goals for employees, starting at its research and development center in Shanghai.

In conclusion, Mercedes-Benz is navigating a challenging environment, facing intense competition in the EV market and rising energy and labor costs. The company's cost-cutting program, including job cuts, is a strategic response to these headwinds. By focusing on more localized production, a more balanced mix of electric and combustion-powered vehicles, and a restructuring of its costs, Mercedes-Benz hopes to restore its profitability within a few years. However, the company must continue to adapt and innovate to remain competitive in the rapidly evolving automotive landscape.