Mercedes-Benz retreats to ICE tech as weak EV sales fail to boost profits

The report states that despite being the leading OEM in the world of luxury electric cars, Mercedes-Benz plans to focus on ICE tech for the foreseeable future. Mercedes-Benz CEO Ola Kallenius told the company’s shareholders at the OEM’s annual general meeting that the transition to electric mobility may take longer than expected. This comes at a time when Mercedes-Benz announced its plans to become an all-electric car brand by the end of the decade. The Mercedes CEO further stated that the automaker will continue to make ICE and hybrid cars till 2030 if the demand remains.

See: Mercedes EQS 580: First Drive Review

A major change in strategy

This change in strategy is a far cry from what Mercedes-Benz promised two years ago. Callenius unveiled the OEM plan two years ago and said the band plans to focus on high-end cars. The company also dubbed the strategy as ‘The Economics of Desire’. Interestingly, at the time, Mercedes-Benz was enjoying an overflow of orders following years of supply chain disruptions due to the Covid-19 pandemic a few years earlier.

The plan was to boost sales of Mercedes-Benz’s most expensive top-end models by 60 percent by 2026, including the AMG Performance model, Maybach luxury line, G-Wagen SUV and EQS, and boost operating margins to about 14. In 2023, however, the company’s return fell to 12.6 percent, and Mercedes-Benz has already warned that its profit margins will shrink further this year.

Also Read: Mercedes-Benz is all set to make EVs look good. Here’s how

EQS, EQE fail to increase profits

Mercedes-Benz is one of the leading brands when it comes to luxury car manufacturers making electric vehicles. The OEM has already launched electric cars like the EQS and EQE sedans, which are a key part of the brand’s strategy to increase profits with top-end sales. However, disappointingly slow sales of electric vehicles failed to fuel the company’s dream of going all-electric by 2030.

Mercedes-Benz’s profit margin fell to nine percent in the first quarter of 2024, which ended in March. This is the lowest profit margin for the brand in more than two years and below its long-term range.

Interestingly, Mercedes-Benz isn’t the only carmaker feeling the heat from weak demand for electric vehicles. Some other auto OEMs are also witnessing dumping sales. Some governments around the world are either stopping or shrinking their lucrative financial support schemes for electric vehicles. Apart from that, slow development of EV charging infrastructure and increasing cost of acquisition of electric vehicles are also impacting sales in this space.

Mercedes-Benz outpaced its luxury carmaker rivals in transitioning to electric mobility in the first quarter of this year, the report said. While Mercedes-Benz’s EV deliveries fell eight percent, its closest rival BMW reported a 41 percent jump in electric car sales.

ICE is still in high demand

While consumers are showing increasing interest towards electric vehicles, internal combustion engine technology is still in high demand and has the lion’s share globally. For Mercedes-Benz and BMW, more than 90 percent of the top-end S-Class and BMW 7-Series cars in China are still ordered with ICE tech. On the other hand, even a steep price cut for the EQS failed to boost demand for the luxury electric sedan. Clearly, keeping an eye on these trends, Mercedes-Benz is revising its strategy and focusing on its greatest strength.

Date of first publication: 08 May 2024, 1:21 PM IST