After the electric strategy turned out to be a major failure, Ola Källenius, head of Mercedes, has realized he made another mistake — focusing on more profitable high-end models at the expense of larger-volume sales.
At the general shareholders’ meeting in October 2020, Ola Källenius, Mercedes CEO, announced that Mercedes would concentrate on sales and electrification of its luxury ranges — Mercedes-AMG, Maybach, and the G-Class. At the same time, Källenius later announced that the compact range would be reduced from seven models to only four.
These decisions were harshly criticized by the German Mercedes Dealers Association in July 2023, as we wrote here. In a four-page letter, the German Mercedes Dealers Association strongly criticized the excessive prices and the policy of no longer allowing optional equipment to be ordered individually, but only in very expensive packages.
Dealers also criticized the fact that reducing the number of compact models would dramatically impact sales volumes — which is exactly what happened. Never since World War II has the sales gap between BMW and Mercedes been so large. In 2024, BMW sold almost 250,000 more units than Mercedes.
Unfortunately, Källenius ignored these warnings, and now this crisis is deepening due to very weak sales of electric models and a dramatic drop in sales in China, especially for luxury models.
Sales of the flagship Mercedes S-Class began falling in the summer of 2024, reaching their lowest level in the brand’s recent history. As a result, S-Class production is now running on a single shift.
Sales of the Mercedes EQS and EQS SUV are also far below expectations, while sales of the G 580 with EQ Technology are extremely weak, as we reported here.
Thus, the scenario predicted by German dealers has come true: the excessive pricing policy is leading Mercedes straight into trouble. Faced with this dramatic situation, Ola Källenius has reacted. Citing internal Mercedes sources, the German press reports that Källenius has decided to abandon the excessive pricing policy and to offer more affordable cars to a larger number of buyers.
According to the same internal sources, the Mercedes boss has admitted that the high-price, high-end focus strategy is not working in the current market context. That is why, unsurprisingly, a few days ago we reported that Mercedes decided to extend the life cycle of the current A-Class until 2028, instead of ending it in 2026 as originally planned.
Also, with the new compact CLA and CLA Shooting Brake models — available as mild hybrids and electric — Mercedes hopes to attract new categories of customers. The company has realized it cannot sell electric cars without cutting-edge technology, and the new CLA/CLA Shooting Brake models come with 800V platforms and fast charging up to 320 kW. In addition, Mercedes will present the new Mercedes GLC EV at the IAA Munich, also built on an 800V technology platform.
Prioritizing the development of high-end electric models EQE and EQS over higher-volume electric ones was another major mistake. After the Mercedes EQC was a resounding failure due to its outdated platform, Mercedes had no electric mid-size SUV in the segment where the Tesla Model Y became the world’s best-selling electric model since autumn 2022. The new Mercedes GLC EV aims to change that.
Chinese competition and the decline of the Chinese luxury market have pushed Källenius to shift focus toward higher volumes, which could restore the company’s former profits.
Better late than never, as the old saying goes. Mercedes has the technological capacity to reinvent itself, and the new CLA and GLC EV are living proof that this is possible. They are not cheap, but at least they feature first-class electric technology that can successfully compete with Tesla. Moreover, the mild-hybrid versions of the CLA and future compact models can contribute to higher volumes and, implicitly, to an increase in total sales.