Will Mercedes Become the Next Volkswagen? CEO Takes Action...

Welcome to Issue #47 of The German Autopreneur!

(Note: While this is the second English edition, we maintain the original German newsletter's issue numbering for consistency across both versions.)

This week's focus: Mercedes.

CEO Ola Källenius has finally responded to the massive Q3 profit drop

His measures: Board restructuring, radical cost-cutting, and a new China strategy.

In today's story, we analyze what this means for both the company and the industry.

Reading time: 5 minutes

🔄 Mercedes-Benz Fights Its Biggest Crisis In History

Mercedes is in trouble. Deep trouble.

Q3 profits crashed by 54%. Their car division's margins collapsed to 4.7% - down from 12.4% last year.

When the CFO called these "results below our standards," he was understating. The house is burning.

The root cause? China - just like VW.

Mercedes' China sales dropped 10% in the first nine months. And the trend keeps heading south.

What went wrong:

• They severely underestimated how quickly China would embrace electric cars

• Their first EV lineup (EQ) flopped badly

• And: They still develop cars "with a German mindset"

We've seen this movie before with VW: German-style products no longer sell in China.

The EQE sales chart reveals the crisis:

Their luxury strategy isn't working either. Operating margins for 2024 are expected at 7.5-8.5%. They used to hit 15%.

The worst part? Sales in their top-end segment - the very heart of their luxury strategy - dropped by 12%. This is exactly where Mercedes wanted to shine with their premium approach.

Now CEO Ola Källenius is responding with 3 measures:

1. Board restructuring

2. Aggressive cost-cutting

3. New China strategy

1) The Board Shakeup

Key changes:

• Oliver Thöne (40) takes over China (previously head of product strategy)

• Mathias Geisen (46) leads sales (coming from vans)

• Olaf Schick returns from Continental for legal

• Britta Seeger moves from sales to HR

Three board members are out: Hubertus Troska (China), Sabine Kohleisen (HR), and Renata Jungo Brüngger (Legal).

2) The Cost-Cutting Program "Next Level Performance"

This hits hard:

• Production capacity review (translation: job cuts coming)

• About 20,000 jobs at risk

• "Massive" cost reductions in procurement, production, and administration

• Doubling down on luxury and EVs

• Goal: become leaner and faster

One big target? Product complexity.

For years, Mercedes equated premium with endless choices. Want to customize everything in your car? From engine variants down to the color of your seat stitching? Mercedes made it possible.

Result: Millions of possible combinations per model.

The problem: It's expensive and slows everything down.

This complexity:

• Makes IT needlessly complicated

• Slows down processes

• Drives up costs

• Confuses customers who then buy elsewhere

3) The China Reset

In China, they're following the global trend: Local for local - or in China speak: "In China, for China." Research & development moves into the country.

The goal? Simple: Build cars Chinese customers actually want.

They're also chasing new tech partnerships. Källenius himself went to China looking for new partners.

First moves:

• Deal with ByteDance (TikTok's parent) for AI cockpit tech

• Bigger investment in AI startup Momenta for self-driving and ADAS

The good news: Mercedes finally sees the crisis. No more business as usual.

The challenge for the new team? Making Mercedes products attractive again in a highly competitive market.

2025 will make or break the star.

🔗 CIO (01, 02) | BL | AMW | AI | LI (01, 02 | MM (01, 02, 03, 04) | RT | AU | AH | WiWo | X | HB | MB

That's all for today.

Feel free to reply to this email with your thoughts.

Until next week,
— Philipp

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