After years in a grudge match against rival BMW to become the world’s biggest luxury automaker, Mercedes-Benz is calling it quits.
The Stuttgart-based manufacturer will cut some entry-level vehicles from its product line and shave 25% off of its share of entry-level cars in the segment by 2026, chief executive Ola Källenius said in a far-reaching interview.
It will also focus on higher priced — higher-margin —vehicles in the coming years, he said. Last year, Mercedes sold 2m vehicles worldwide, while BMW sold 2.5m, beating Mercedes for the first time in five years.
“We are not going to go in and compete with the volume makers — that’s not our place,” said Mr Källenius. “We will still cater to the entry-level luxury segment. But we will trim the portfolio. Today we have seven models in that segment; in the future we will have four,” he said.
He declined to specify which models would be cut. Entry-level vehicles at Mercedes include the A-Class sedan, CLA coupe, and GLA Suv.
Instead, the brand will increase by 60% the sales share of its top-end vehicles by 2026. That group includes sales of the S-Class, Mercedes-AMG, Maybach, and G-Wagen lines.
The strategy is key to maintaining the current strong level of margins, says Michael Dean, a senior automotive analyst for Bloomberg Intelligence.
During the day with investors May 19, the company announced a modest uplift of margin targets to 14% by 2025, versus 12.7% in 2021. But even with some improvement, it would still be disappointing compared to competitors.
“The decision by Mercedes to drop some low-end models is welcomed,” Mr Dean said. “However it’s a moot point whether they will gain credit by investors for the decision, if BMW or Audi does not follow suit,” he said.
Prior to its semi-annual investor day also held in Monaco, the brand unveiled examples of its high-end vehicles that would place it closer to competitors like Bentley and Rolls-Royce.