Mercedes-Benz has announced a new strategic direction aimed at profitable growth in the luxury segment and leadership in the field of electric propulsion and automotive software.
" In the last few years, we've done a lot of good things: design, product engineering, brand rejuvenation, sales growth. As a result, we put Mercedes back on top. But we have yet to reach our full potential for turning volume success into earnings growth. This is why we have refocused and are launching our new strategy. We intend to build the world's most desirable cars. It's about leveraging our strengths as a luxury brand to increase economic value and improve the composition and positioning of our product line. We will unleash the full potential of our subsidiaries – AMG, Maybach, G and EQ. Our strategy is designed to shut down non-core activities so that we can focus on what really matters: dedicated electric vehicles and automotive software. We will take action on structural costs and aim for strong and sustainable profitability ", said Ola Källenius, Chairman of the Board of Directors of Daimler AG and Mercedes-Benz AG at a virtual investor and analyst conference titled “Mercedes-Benz Strategy Update” on October 6, 2020. Mr. Källenius also said: “ With this new strategy, we are announcing our clear commitment to the full electrification of our product line and our determination to ensure that the company is fully carbon neutral, in line with our Ambition 2039 goal. ".
Mercedes-Benz’s new strategy is a comprehensive program that has been designed to advance the company technologically and financially. It is based on six pillars:
Think and act like a luxury brand
Luxury has always been part of the soul of Mercedes-Benz. In the future, the brand will once again focus on luxury, making it an integral part of all products, customer interactions and digital technologies. Mercedes-Benz will reshape its product offering, brand communication and sales network to deliver a true luxury experience – a luxury experience that will be electric, technological and sustainable.
Focus on profitable growth
Mercedes-Benz will take steps to improve and recalibrate its market strategy. They will focus on optimizing the balance between volume, price and distribution channel allocation to ensure better contribution margins for the current and future portfolio. Mercedes-Benz will also focus its resources and capital for product development on the most profitable parts of the market to ensure higher profitability.
Expand the customer base by developing subsidiaries
Mercedes-Benz is the world's most valuable luxury car brand, Interbrand says. She will remain the guiding star. But Mercedes-Benz also has extraordinary subsidiaries: AMG, Maybach, G and EQ. The new strategy will take them up a gear, accelerating their development, with clear and targeted plans to unlock their potential and generate additional growth.
AMG is poised to take the next step with the electrification of its high performance vehicles which will begin in 2021. Its ties to Formula 1 will also intensify next year to reflect its identity as a high performance subsidiary of Mercedes. Maybach will pursue global opportunities by doubling its size and switching to electricity. The demand for the legendary G is greater than the current supply, so it will grow and electrify. With the EQ brand, Mercedes-Benz will reach out to a new audience with high-tech products, built on dedicated electrical architectures.
Welcome customers and increase recurring revenue
Mercedes-Benz is committed to nurturing lasting relationships with its customers. The goal is for customers to love owning a Mercedes-Benz and to be so happy with the relationship that they will stay with the brand for a long time, ideally forever. From now on, Mercedes-Benz will aim for even stronger loyalty, an increase in repeat purchases and rapid growth in recurring revenue – from services and parts, but also, increasingly, updates and services from subscription. The growing number of connected cars offers very significant revenue opportunities in the future as the Mercedes-Benz fleet will reach 20 million fully connected vehicles in total by 2025.
Leader in electric motors and software for cars
Mercedes-Benz wants to take the lead in electric motors and automotive software with ambitious product development goals and the accelerated introduction of new technologies. As part of its “Electric First” strategy, Mercedes-Benz has announced four new electric vehicles based on its future electric vehicle architecture for SUVs? (EVA). The luxury sedan EQS is the first representative of this new dedicated architecture and will be marketed in 2021 with an electric range of more than 700 km (WLTP). It will be followed by the EQE, EQS-SUV and EQE-SUV, as well as AMG, Maybach and G which will also switch to electric. From 2025, many more models will be added to the electric vehicle lineup on the second all-new dedicated electric platform, Mercedes-Benz Modular Architecture (MMA) designed for compact and midsize cars.
Mercedes-Benz will devote even more of its resources and know-how to the development of electrically powered products, and will invest in new technologies and concepts to accelerate the range and efficiency of these vehicles. . The next generation of electric motors are developed in-house and will feature a sophisticated inverter and high voltage technology. The company is making huge strides in battery technology – with in-house battery R&D complemented by close partnerships with key strategic partners such as CATL, Farasis and Sila Nano. New materials and production processes will increase battery life, reduce time and cost of loading.
Mercedes-Benz also announced today an exciting new step in the development of electric vehicles, with the Vision EQXX technology program. The goal is to build an electric vehicle with spectacular efficiency and range. Mercedes-Benz tasked its engineering group with pushing the boundaries of electric range and efficiency with a multidisciplinary, cross-functional team based in Stuttgart. Supported by specialists from the Mercedes-Benz F1 HPP group in the United Kingdom, they bring them their expertise in electric motors as well as a speed of development inspired by motorsport. Although Vision EQXX is a technology program, it should lead to innovations that will quickly find their way into production cars.
In the area of automotive software, Mercedes-Benz announced its own proprietary operating system MB.OS. This will be developed internally and its launch is scheduled for 2024. It will enable Mercedes-Benz to centralize control of all areas of vehicles as well as its consumer interfaces. The development of proprietary software will allow greater speed and more frequent updates. It will be designed around scalable architectures that will control future development costs.
" At Mercedes-Benz, we strive to do nothing less than take the top spot in electric propulsion and automotive software. We will achieve this through a smart electric platform strategy and software development approach ", said Markus Schäfer, Member of the Board of Directors of Daimler AG and Mercedes-Benz AG, Head of Research of the Daimler Group and Managing Director of Mercedes-Benz Cars. " We're going to do it the Mercedes way, bringing a true luxury experience to the world of electric and connected cars. We will take advantage of internal technological development and strategic partnerships to offer great products and from 2025 we aim for strong contribution margins for all new architectures thanks to great similarity, controlled investments, as well as continued decline in the cost of battery systems. As we expand the electrified portfolio to reach a share of over 50% of global sales by 2030, our investments in combustion engine development will rapidly decline and the number of combustion engine variants will decrease by 70 % by 2030 ".
Reduce costs and improve the industrial footprint
Mercedes-Benz will improve profitability and cash generation and take steps to prepare for the future and accelerate the shift to electric drive. The events of 2020 have confirmed that the company's break-even point is too high and, given the transformational challenges ahead, further action will be required. Mercedes-Benz will therefore take important further steps to reduce the cost base and improve the industrial footprint by 2025.
Fixed costs will be reduced by more than 20% by 2025 from the 2019 baseline through reduced expenses, capacity adjustments and lower staff costs. Capital expenditure and R&D are also expected to decrease by more than 20% by 2025 compared to 2019. Variable costs will be reduced by 1% net per year compared to the 2019 level during the period up to 'to 2025, including increased and extended savings targets for material costs. This target excludes the effects of an increase in electricity supply.
Mercedes-Benz's new strategy and its financial ambitions
With its refocused approach, Mercedes-Benz’s new strategy is expected to improve business performance through better mix and pricing, enhanced product portfolio and recurring revenue growth. These developments, combined with actions on costs and industrial footprint, should lead to a structurally higher level of profitability. By 2025, Mercedes-Benz AG is aiming for a mid to high single digit return on sales (RoS) level, even under adverse market conditions. The company's ambition is to achieve a double-digit margin in a strong market environment.
“We are ready for profitable growth. We have taken steps to lower the breakeven point in order to resize our business and operations. All of these measures are aimed at making our business weatherproof, meeting the challenges of transformation and achieving solid profitability levels even under difficult conditions, with a significant increase in favorable market conditions ”said Harald Wilhelm, member of the board of directors of Daimler AG, responsible for finance and management control of Daimler Mobility and Mercedes-Benz AG.
" The basis of our new strategy is our highly qualified and motivated team. At Mercedes-Benz, we are all determined to achieve our ambitions. We will build the most desirable cars in the world. This is our mission, this is what we want to offer our customers. We are going to take a leap forward in technology. We will invest where we can win, grow smarter and reshape our industrial footprint. We will thus be able to improve profitability and increase shareholder value "Said Mr. Källenius.