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Mercedes-Benz: Profits Down, R&D Up

On February 20, Mercedes-Benz Group AG, commonly referred to as Mercedes, revealed its financial performance for the 2024 fiscal year. The company's revenue for this period reached €145.6 billion, marking a decline of 4.5% compared to 2023's €152.4 billion. Additionally, earnings before interest and taxes (EBIT) fell significantly to €13.6 billion, a drop of 30.8% from the previous year's €19.7 billion.

The performance of Mercedes in the automotive sector has drawn considerable attention amid a complex market landscape. Analyzing its passenger vehicle business segment, it’s clear that the company faced a series of challenges this fiscal year. The slump in sales has resulted in a contraction of Mercedes' market share. This downturn can be attributed to multiple factors, including shifting market demands and the rise of competitors. Additionally, lower net pricing strategies, likely adopted to combat fierce market competition and stimulate consumer spending, have adversely affected profit margins. Furthermore, an unfavorable model mix has hindered performance, as certain models did not garner the expected market acceptance, failing to contribute sufficiently to overall profitability.

In this context, the adjusted EBIT for Mercedes' passenger car division has plummeted to €8.7 billion, a significant reduction of €5.6 billion compared to the previous fiscal year, indicating a clear decline in performance. The adjusted sales profit margin dropped to 8.1%, down by 4.5 percentage points year-on-year, signaling weakened profitability. Nevertheless, despite the profit pressures, Mercedes has not held back on investments in research and development. This year, the spending on R&D for the passenger vehicle division remained high at €8.7 billion, primarily aimed at developing future platforms and technologies, with particular focus on substantial investment in the MB.OS operating system. The company recognizes that in an era where the automotive sector is rapidly shifting towards intelligence and digitalization, an advanced operating system is crucial for enhancing product competitiveness and meeting the growing consumer demand for smart features. Through ongoing investments in MB.OS, Mercedes hopes to provide users with a smarter and more convenient driving experience in the future, thereby solidifying and enhancing its position in the passenger car market.

In contrast, the light commercial vehicle segment displayed a relatively stable performance. This division's adjusted EBIT reached €2.8 billion, reflecting good profitability, with an adjusted sales profit margin of 14.6%. This figure indicates that the light commercial vehicle division has excelled in cost control and product pricing strategies, demonstrating robust market competitiveness. Similarly, the R&D investment in this segment has maintained a high level, totaling €1 billion. This investment primarily focuses on enhancing vehicle performance, safety, and tailoring to the specific needs of various industry clients, ensuring that Mercedes' light commercial vehicles can always meet the diverse market demands for efficient and reliable transport solutions, reinforcing its market share in this sector.

Ola Källenius, Chairman of the Board of Mercedes-Benz Group AG, articulated, "To ensure our company remains competitive in a progressively unpredictable environment, we are taking measures to make it leaner, faster, and stronger, starting with an aggressive rollout of new models led by the all-new CLA."

Excitingly, Mercedes has ramped up its product rollout schedule, planning to launch the brand-new CLA model in 2025, followed by an updated S-Class in 2026. Addition to this, the company is set to unveil an all-new fully electric GLC SUV and a completely revamped fully electric C-Class sedan. With an extensive product launch agenda, the corresponding R&D investments are expected to peak in 2025, before tapering off starting in 2026. The main investment activities regarding the new CLA, the fully electric GLC SUV, the fully electric C-Class sedan, and the AMG.EA models are projected to be completed by the end of 2027, with more models to be introduced progressively.

Moreover, to further enhance corporate competitiveness and resilience, Mercedes has begun implementing a comprehensive operational performance improvement plan aimed at restoring the adjusted sales profit margin for its passenger vehicle segment back to double digits. Specific measures include unlocking further growth potential in direct sales channels, along with enhancing global production efficiency and flexibility. The company has proclaimed its intention to reduce production costs by 10% by 2027, with additional fixed cost reduction efforts continuing into the same timeframe.

In 2024, Mercedes' sales in China amounted to 714,000 units, reflecting a year-on-year decline of 6.7%. The company has emphasized that China continues to be one of the most critical markets in its global strategy, promising sustained investment in the region.

From 2019 to 2023, Mercedes' R&D investment in China reached €10.5 billion, establishing the country’s research and development sector as the largest and most robust network outside of Germany, employing over 2,000 R&D specialists. Last October, Mercedes announced it would be collaborating with local partners to invest over 14 billion yuan in China.


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