Mercedes-Benz's Premium Play in China: Balancing Brand Resilience and EV Realities

In the high-stakes arena of China’s electric vehicle (EV) market, Mercedes-Benz has adopted a calculated approach that prioritizes brand equity over sheer sales volume. This "value over volume" strategy, articulated by CFO Harald Wilhelm, underscores the automaker’s commitment to maintaining profitability amid a rapidly evolving landscape dominated by agile local competitors [5]. By focusing on premium segments and bespoke offerings, Mercedes-Benz aims to carve out a niche where price sensitivity is secondary to exclusivity and heritage.

The Premium Value Strategy: High-End Models and Cost Efficiency

Mercedes-Benz’s strategy in China hinges on elevating its luxury portfolio. The company plans to introduce more high-end models, including the S-class, AMG, and Maybach lines, while expanding its Manufaktur customization program to cater to affluent customers seeking personalization [5]. This approach aligns with its 2026 target of 400,000 luxury vehicle sales, a goal that reflects confidence in the enduring appeal of premium branding.

Simultaneously, Mercedes-Benz is streamlining operations to reduce costs. By localizing production in China and the U.S., outsourcing non-core functions, and managing workforce reductions through attrition and voluntary redundancy, the company aims to cut production costs by 10% by 2027 and 20% by 2030 [4]. These measures are critical to offsetting the financial pressures of a market where domestic EV startups, such as BYD and NIO, have disrupted traditional pricing models with aggressive discounts and rapid innovation.

Electrification in China: Tailoring EVs to Local Preferences

While Mercedes-Benz remains committed to electrification, its approach in China is nuanced. The company has positioned the country as a central hub for its EV strategy by 2025, with all new architectures from 2025 onward being electric-only [1]. To resonate with Chinese consumers, Mercedes-Benz has tailored its EVs to emphasize spacious interiors and advanced digital features, such as augmented reality navigation and AI-powered infotainment systems [2].

A notable example is the Vision V, a luxury chauffeur-driven limousine unveiled at the Auto Shanghai 2025 exhibition. This model exemplifies the brand’s vision for premium mobility in China, blending cutting-edge technology with opulent design [4]. Additionally, in 2025, Mercedes-Benz introduced significant price reductions on high-end EVs to stimulate demand, a strategic move to counter the pricing pressures from local rivals [3].

Financial Performance: Resilience Amid Challenges

Despite a challenging macroeconomic environment, Mercedes-Benz’s premium strategy has shown resilience. In Q2 2025, while overall car sales declined by 9%, Top-End vehicle sales—encompassing models like the G-Class and Maybach—dropped by only 8%, underscoring the segment’s relative strength [1]. EV deliveries also grew by 4% to 94,000 units, accounting for 21% of total car sales, a testament to the gradual adoption of electrification [1].

However, profitability remains under pressure. EBIT for the car division plummeted by 68% year-on-year to €1.27 billion in Q2 2025, driven by tariffs, foreign exchange headwinds, and reduced contributions from China operations [1]. Analysts project a 20% decline in 2025 earnings per share compared to 2024, reflecting the broader industry challenges of margin compression and capital-intensive EV transitions [1].

Long-Term Risks and Opportunities

Mercedes-Benz’s strategy faces headwinds from both market dynamics and macroeconomic factors. The dominance of Chinese EV startups, which leverage lower-cost production and rapid iteration cycles, has eroded market share for foreign automakers. For instance, Mercedes-Benz and its German peers experienced a 12% average decline in luxury EV deliveries in the first nine months of 2024 [3].

Yet, the company’s global dealer network and legacy of engineering excellence remain key differentiators. Its investment in China—€1.8 billion with joint venture partner BAIC—signals a long-term commitment to adapt to the market’s electrification trajectory [3]. Analysts argue that Mercedes-Benz’s ability to balance cost-cutting with innovation will determine its success. For example, the launch of new EQ models in Q2 2025, coupled with localized production, could drive annual EV sales growth of over 25% [1].

Conclusion: A Delicate Balance

Mercedes-Benz’s "value over volume" strategy in China is a high-stakes bet on brand loyalty and premium pricing power. While the company’s financials reflect the turbulence of a market in flux, its focus on high-margin luxury vehicles and tailored EV offerings positions it to weather short-term challenges. However, long-term success will depend on its ability to innovate at the pace of local competitors while maintaining its premium identity. For investors, the key will be monitoring how effectively Mercedes-Benz navigates this balancing act—leveraging its heritage to secure a foothold in China’s electrified future.

Source:
[1] Mercedes-Benz Q2 2025 slides: Profit plunges 68% as tariffs and China headwinds bite [https://www.investing.com/news/company-news/mercedesbenz-q2-2025-slides-profit-plunges-68-as-tariffs-and-china-headwinds-bite-93CH-4158873]
[2] China to be centre of Mercedes-Benz 2025 EV sales drive [https://www.reuters.com/business/autos-transportation/china-be-centre-mercedes-benz-2025-ev-sales-drive-automobilwoche-says-2023-07-23/]
[3] German carmakers are placing a risky bet on China [https://merics.org/en/comment/german-carmakers-are-placing-risky-bet-china]
[4] Mercedes-Benz announced plans to cut costs and expand its lineup [https://www.cbtnews.com/mercedes-benz-announced-plans-to-cut-costs-and-expand-its-lineup/]
[5] Why Mercedes is turning itself downside up [https://www.linkedin.com/pulse/why-mercedes-turning-itself-downside-up-phil-mcnamara-67vle]