Facing defeat in China, struggling with costs, and hit by tariffs — Mercedes reaches a critical juncture

Facing defeat in China, struggling with costs, and hit by tariffs — Mercedes reaches a critical juncture

1) The Spotlight is Blinding, but the Numbers are Cold

Mercedes-Benz knows how to put on a show. The launch of the new S-Class was a grand spectacle at the company's museum. Pop stars sang, global sports stars appeared, and the head of a major semiconductor company sent a congratulatory message via video—everything was set to make you think, "That's Mercedes for you."


However, the reality outside the spotlight is harsh. The article highlights a "triple whammy" of plummeting profits, declining sales, and a drop in the number of units sold. Mercedes is a brand that symbolizes automotive history, but this cold reality shows that symbolism alone can't win in today's market.


2) It's Not Just "External Factors"—Their Own Mistakes Hurt

Of course, the entire German automotive industry is facing headwinds. The economy, supply chains, geopolitics, regulations, and the pace of electrification—there are many external factors. However, the article delves into the issue by stating, "Part of it is our own problem."


A symbolic issue is the wavering electrification strategy. They once steered towards "electric first," and then "electric only," but later revised this to include internal combustion engines as "strategic flexibility." While it may sound reasonable to adapt to market realities, from the consumer's perspective, it often leads to the question, "So, which is it?" Since EVs require a stronger reason for replacement than before, a wavering policy can become a psychological brake.


3) The "Winning Strategy" During the Semiconductor Shortage Led to Misreading the Future

Another point raised is the decision during the semiconductor shortage amid the COVID-19 pandemic. Prioritizing limited chips for high-margin luxury cars seemed rational in the short term. Indeed, at that time, it was a "make it and it will sell" situation.

However, this successful experience led to a misunderstanding of a "change in demand structure." Expecting luxury and large vehicles to grow consistently, they strengthened their luxury focus, resulting in a situation where it became difficult to justify the price premium when "other companies also make good cars, and they're cheaper."

This is where the challenge of a premium brand lies. If you raise prices, the perceivable differences (quality, technology, experience, trust) must also be "clearly superior." If the differences become ambiguous, consumers will shift to "the cheaper option with equivalent quality."

4) China: The "Premium Battle" in the Largest Market Becomes Intensely Competitive

The article particularly emphasizes the significance of China. For Mercedes, China is one of the largest markets, accounting for about one-third of its sales, but local manufacturers are rapidly improving quality and functionality, intensifying price competition.


In 2025 sales, China is said to have significantly declined, and global passenger car sales are also decreasing.
The Chinese market experiences "waves of novelty" quickly. Competition arises in the overall experience, including in-car OS, cockpit experience, ADAS (Advanced Driver Assistance Systems), smartphone integration, and OTA updates. It's becoming difficult for traditional brands to win with just "driving," "texture," and "status," making persuasiveness in the digital realm essential.


5) Tariffs and Costs: Profits are Eroded from Both Outside and Inside

Another punch comes from tariffs. U.S. tariff policies are said to be squeezing profits and casting a shadow over forecasts.
Furthermore, high labor costs in Germany and fixed costs in indirect departments tend to be burdensome. When sales stagnate, high fixed costs can rapidly thin out profits.


In response, Mercedes is strengthening cost-cutting efforts, setting goals such as reducing production costs by 10% by 2027 (based on reports).
This is an area where they "have no choice but to act," but if they make mistakes in how they cut costs, they risk eroding brand value. They must eliminate waste without compromising the reasons for being premium (quality, service, development capability)—easier said than done.


6) Still, There is Hope: Can They Create a "Difference" Again with Products and Technology?

The article also touches on the "rebuilding" of the product side, including the new CLA (entry-level) and the new GLC, a best-selling SUV. The attempt to redesign the experiential value, including the in-car OS (MB.OS), should not be overlooked.


Moreover, their lead in the fields of driver assistance and autonomous driving can become the core of differentiation. The weapons that justify high prices are directly linked to "safety," "comfort," "reduced fatigue," and "quality of the travel experience."

 
However, it is meaningless if this does not reach the market in a "clearly communicated way." Having features alone won't win; it's crucial that they are felt in everyday life.


7) Reactions on Social Media

When news like this comes out, social media typically splits into three camps.

  • ① "Going All-in on EVs Was Too Soon" Camp
    Voices saying, "EVs have significant regional differences, so 'only' is too aggressive," and "Ultimately, the change in direction is a cause for concern." Many see the strategic wavering as potentially leading to "purchase hesitation."

  • ② "China is Too Strong" Camp
    Reactions that calmly discuss the changing competitive environment, such as "Chinese manufacturers are evolving rapidly" and "Even in luxury, losing in 'digital experience' is the end." Posts particularly touching on the balance of price and equipment stand out.

  • ③ "Still, Mercedes is Mercedes" Camp
    Support that borders on faith in the brand, with comments like "Safety and trust are unparalleled" and "Nothing can replace the lack of fatigue on long distances." However, these often come with the demand, "That's why we want to see more 'difference.'"


8) Conclusion: 2026 is a "Year of Endurance," Results Expected in 2027

The article's outlook suggests that 2026 is a transition period, with signs of recovery expected from 2027 onward.
The battle from here can be simply put into three points.

  1. Recreate a Reason to be Chosen in China, Even at a High Price

  2. Transform into a Structure that Can Withstand Tariffs and Fixed Costs Without Damaging the Brand

  3. Demonstrate "Clearly Superior" Products and Software Experience Over Competitors


A grand show is necessary to protect the brand's narrative. But a narrative alone won't move the market. Can they face the causes of the cold numbers and reconstruct the "reason the star shines" with real value? Mercedes' critical moment is just beginning.


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