Fancy Forward: Mercedes-Benz Can No Longer Cater to Plebs

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Mercedes-Benz looks poised to retreat from high-volume compacts. During an online corporate strategy meeting held on Tuesday, Daimler CEO Ola Källenius indicated that the luxury subsidiary may have overextended itself.

“Maybe we went at a bit too far to cover each and every space into each and every segment. Compact particularly comes to mind,” he explained. “This is not where the main thrust should go, we should not become a competitor of the volume makers.”

But the company only has itself to blame for that. Around a quarter of the brand’s annual sales come from compact vehicles and they’ve been taking up a larger share of its product portfolio. Källenius seems to think Mercedes has done enough to broaden its appeal and need to refocus on higher-end vehicles with better margins. “Our [current] strategy is designed to avoid non-core activities,” he said, adding that funds will be prioritized for more profitable products.

“We’re not chasing volume, we’re targeting profitable growth.”

While that seems to indicate fewer A and B-Class vehicles (not to mention CLA and GLA models) moving forward, Källenius made it abundantly clear that many of the brand’s smaller vehicles were too new to consider taking off the table. He also said that those units likely played an important role in bringing new customers into the fold but that Mercedes had enough of them.

But there will be consolidation. Daimler has repeatedly indicated that Mercedes-Benz would be utilizing fewer platforms to underpin its products as a way to free up cash for its electrification program amid restructuring. For smaller vehicles, MMA (Mercedes-Benz Modular Architecture) will be the obligatory starting point and capable of supporting battery applications. According to Automotive News, Tuesday’s event included a slide presentation showing five silhouettes of cars using the platform. While none of them were identified by vehicle time or time frame, it’s technically less than what the brand currently offers. MMA is also supposed to underpin midsize models in addition to compact cars, which may require the elimination of several existing models.

“We have a great opportunity for horizontal growth, not adding more cars to the compact segment but finding more customer groups to come under the Mercedes master brand,” Kallenius said.

From Automotive News:

Daimler described the platform as ‘electric first’ with batteries fitted under the floor in a sandwich style structure similar to Volkswagen’s MEB electric platform. Unlike MEB, the Mercedes platform can accommodate an internal combustion engine in the front so it can be used or full-electric cars and versions with gasoline or diesel engines.

The platform will incorporate fast charging via an 800-volt electrical system and over-the-air updates.

Ultimately, the company said it was vying to achieve profit margins in the “mid to high single digits” by 2025 (regardless of market conditions) and doesn’t think compact vehicles are the way to get there. It’s doubling down on electrification and noted that China will play an important role as its market had grown more than 23 percent from July to September (vs 2019) while the North American market shrank. China is currently the brand’s largest customer by volume and is assumed to be more receptive to electrification than the United States.

Of course, shifting toward EVs also alleviates some of the regulatory pressures being exerted on Mercedes. It has spent billions of euros trying to adhere to stringent emission mandates and buying its way out of diesel-related scandals that have become all-too-familiar within the industry. There’s also a very real regulatory push in Europe and China that is effectively driving players to introduce electric vehicles just to fulfill government requirements. We’re not sure how environmentally sound that strategy actually is but it’s not surprising to see so many manufacturers take the bait, especially if they plan on selling globally.

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