Mercedes-Benz’s Strategic Layoffs: Navigating Trade Turmoil and Competitive Pressures

The automotive industry is undergoing a seismic shift, driven by trade tensions, technological disruption, and intensifying competition. Nowhere is this clearer than in Mercedes-Benz’s recent announcement of accelerated job cuts and cost-reduction measures. These moves, aimed at shoring up profitability amid a deteriorating economic landscape, signal a critical pivot for the luxury automaker.

The Scale of Restructuring

Mercedes-Benz plans to cut its Chinese workforce by 10–15% across sales, finance, IT, and legal departments by 2027, with layoffs already underway. This affects approximately 500–750 employees in China, excluding the 2,000 researchers in R&D—a division deemed critical for future competitiveness. Globally, the company has secured agreements with its works council to reduce labor costs by 25% in China and 10% in production costs by 2027, with further savings targeted by 2030.

The restructuring extends beyond China. Mercedes has proposed up to 20,000 job cuts worldwide, potentially rising to 33,000 (20% of its global workforce) if market conditions worsen. These cuts include slashing profit-sharing bonuses, halving salary increases, and outsourcing non-core functions. Management has guaranteed no forced redundancies until 2034, relying instead on voluntary buyouts and attrition.

The Drivers: Trade Turmoil and Competitive Pressures

The layoffs are a direct response to three interconnected challenges:
1. Trade Tensions: Rising tariffs and geopolitical friction, particularly between the U.S. and China, have forced Mercedes to localize production in both markets. This reduces reliance on cross-border supply chains but adds complexity.
2. Chinese Competitors: Domestic automakers like BYD are eroding Mercedes’ market share with cheaper, high-quality EVs. In 2023, BYD became the world’s largest EV seller, while Mercedes’ global EV sales fell to just 9.3% of total vehicles in 2024—far below its 50% target for 2025.
3. Profit Margins: Q1 2025 results highlight the strain: EBIT dropped 40.7% year-on-year to €2.3 billion, with margins in its core car division slipping to 7.3%, down from 9% in 2024.

This comparison reveals Mercedes’ stock underperformance amid BYD’s rise and Tesla’s stabilization, underscoring the urgency of its restructuring.

The Strategic Shifts

To counter these headwinds, Mercedes is recalibrating its strategy:
- Product Mix: Shifting toward luxury ICE vehicles (e.g., AMG and G-Class), which now account for 15% of sales, to offset EV margin pressures.
- Localization: Increasing production in China and the U.S. to insulate against tariffs. For instance, its joint venture with BAIC Motors aims to reduce material costs by 10% and production costs by 20%.
- Cost Discipline: The “Next Level Performance” program targets €5 billion in savings by 2027, with half of these realized in 2025.

Risks and Uncertainties

While necessary, the cuts carry risks:
- Labor Disputes: Unions criticize the erosion of worker benefits, with plants like Sindelfingen already operating single shifts due to weak demand.
- Market Volatility: Ongoing tariff disputes could further depress margins. Mercedes warns of “material impacts” if tariffs remain in place.
- Electrification Lag: With EV sales stagnant at 19.5% of global sales in Q1 2025, the company risks falling further behind rivals like BYD and Tesla.

Conclusion: A Necessary But Precarious Path

Mercedes-Benz’s restructuring underscores the tough choices automakers face in a fractured global economy. The job cuts and cost measures are a rational response to trade pressures, Chinese competition, and EV market realities. However, success hinges on execution:

• Cost Savings: Achieving the €5 billion target by 2027 will require disciplined execution of buyouts, outsourcing, and localized production.
• Margin Recovery: Rebalancing the product mix toward high-margin luxury ICE vehicles and localized EVs must offset declining ICE demand and EV underperformance.
• Trade Mitigation: Reducing exposure to cross-border tariffs through localization could stabilize margins, but geopolitical risks remain unpredictable.

The stakes are high. With its stock price down 23% since 2021 (as of Q1 2025) and EV sales lagging targets, Mercedes must prove it can adapt faster than its competitors. The next 18 months will test whether its restructuring—while painful—is sufficient to reclaim its position in an increasingly competitive automotive landscape.

Investors should monitor two key metrics:
1. Q2 2025 EBIT: A further drop below €2.3 billion would signal deeper structural issues.
2. EV Sales Growth: A rebound to 25% of sales by year-end would ease concerns about its electrification strategy.

In the end, Mercedes’ survival hinges on balancing short-term cost cuts with long-term innovation—a tightrope walk in an industry where missteps can be fatal.