Striving for an operating margin target of ~14%.
Mercedes-Benz (MBG stock symbol) has hosted a strategy update on the Côte d’Azur dubbed ‘Economics of Desire’ that outlined the future of Mercedes-Benz as a ‘pure-play’ luxury car company. The company will focus more on luxury, elevate its product portfolio, accelerate its path to a fully electric future and target structurally higher profitability, according to top executives. (AutoInformed: Mercedes-Benz Group Posts Some Strong 2021 Results)
“What has always been the core of our brand is now also the core of our strategy: the luxury segment. We are further sharpening the focus of our business model and product portfolio in order to maximize the potential of Mercedes-Benz even in challenging conditions. At the heart of that is our goal to build the world’s most desirable cars,” said Ola Källenius, Chairman of the Board of Management of Mercedes-Benz Group AG.
Mercedes-Benz will change its product portfolio, allocating more than 75% of its investments to develop products for the most profitable market segments. As part of this strategy designed to please the capital markets, Mercedes-Benz aims to increase sales share of its Top-End vehicles by around 60% by 2026 compared to 2019. Like many auto companies it intends to achieve “higher quality growth and a further significant increase in profitability and resilience, striving for an operating margin target of approximately 14%* by mid of the decade in favorable market conditions.”
This greater focus on the top end of the market should enable the company to deliver a strong financial result even under more challenging market conditions. The company’s strategic decision to become fully electric by 2030, wherever market conditions allow, and the ambition to become CO2-neutral by 2039 are integral elements to enhance the connection between luxury and sustainability.
During 2021, the Mercedes-Benz S-Class posted an increase of 40%. The Mercedes-AMG and Mercedes-Maybach also set new records. Mercedes-Benz intends to use its brand’s power even more effectively in a growing luxury market. Going forward, the company anticipates disproportionate growth in the Top-End vehicle segment and will use this as an opportunity to reconfigure the structure of its product portfolio.
Executive Summary
- Top-End Luxury: Share of Top-End vehicle sales projected to rise by around 60% by 2026; product offensive from Maybach, AMG and G-Class with dedicated EV-characteristics and greater individualization; “MYTHOS Series” of highly-exclusive collectible cars
- Core Luxury: 2023 E-Class aims to set new benchmark in digital customer experience; development of additional electric vehicle specifically for Chinese market on EVA2 platform
- Entry Luxury: Focus on only four model variants with elevated positioning compared to today while new entrance point will be redefined; products will leverage VISION EQXX EV-technology and new MB.OS software
- Brand management: Iconic communication and selected luxury collaborations; rapid expansion of direct sales and dedicated “Brand Experience Centers” for Top-End vehicles
- Financial performance: Mercedes-Benz redesigned and re-positioned to achieve goal of structurally higher profitability and reduced volatility; strategic margin ambition as pure-play company in the luxury segment raised to approximately 14% in favorable* market conditions by mid of the decade; Product mix and pricing power as key drivers
Financial Footnote
*Increase in structural profitability means striving for an operating margin of approximately 14% by mid of the decade in favorable market conditions. Mercedes-Benz aims for “margins of approximately 8% in very unfavorable, approximately 10% in unfavorable and approximately 12% in fair market conditions. Unforeseeable geopolitical or macro-economic shifts and raw material premises obviously cannot be part of this target grid, but Mercedes-Benz is redesigning the company to ensure stronger profitability even in a tougher environment. The focus continues to be on strong cash generation and significant cash returns to shareholders.”
Stuttgart Jun 21, 2022 – Mercedes-Benz Group AG appoints Paul Gao* to the newly created position of Chief Strategy Officer, effective July 1, 2022. Gao, who has decades-long experience working in the auto sector, was most recently a Senior Partner at McKinsey & Company in Hong Kong, serving both Chinese and global industry clients. With his international background he will steer all aspects of the Mercedes-Benz strategy. A central part of Paul Gao’s role will be to incorporate the specific requirements and insights of key Asian markets into strategic business decisions at Mercedes-Benz. Gao will report directly to Chief Executive, Ola Källenius.
“Paul is an excellent addition to our team: a proven strategist with exceptional analytical skills who has also demonstrated the ability to successfully deploy his ideas. He has close to 30 years of auto industry experience and essential know-how about China and other Asian growth markets. This makes Paul the right choice to further enhance the international profile of our brand, our management and our company“, said Ola Källenius, Chief Executive of Mercedes-Benz Group AG.
*Since the completion of his academic studies in the United States and China, Gao has worked for leading professional service firms in America and Asia, including almost 20 years with McKinsey & Company. As a Partner since 2003 and a Senior Partner since 2013, Paul Gao has been advising leading multinational and Chinese automotive companies. He has deep expertise in corporate and business unit strategy, sales and marketing strategy, joint ventures and strategic partnerships, cross-border transactions, organizational development and product strategy with a focus on e-mobility. Paul Gao speaks fluent English and Mandarin.