Mercedes Moving to More Expensive Cars Because The Rich Get Richer
Supply chain breakdowns have rewarded maximizing profit per vehicle, and Mercedes-Benz is looking to keep that going in the future.
The global chip shortage turned the automotive business model on its head, rewarding per-vehicle profit margins when volume simply became impossible. Perhaps the automaker best suited to adapt was Mercedes-Benz, whose CEO told investors at an event in Monaco that'll be the order of business from here on out. Instead of focusing on volume, Mercedes will amplify the already tall profit margins on its most expensive models to secure its future—and make more exclusive ones.
Mercedes CEO Ola Kallenius told investors at its Capital Markets Day on May 19 that he would increase sales of Mercedes' most expensive models by 60 percent by 2026, and boost margins to around 14 percent, according to Bloomberg. The entry point for Mercedes-Benz buyers in the past would not be the entry point for future buyers, he specifically said.
That means emphasizing Mercedes' definitive models, such as the S-Class, EQS, G-Wagen, and those offered under its AMG and Maybach brands, by diverting 75 percent of its investment into these vehicles. It'll also involve launching a brand for limited-production models, Mythos, to compete with the likes of Ferrari's Icona, Bentley's Mulliner, and Porsche's Exclusive Manufaktur.
"Upper-premium luxury has the greatest growth potential," Kallenius said. "It's not just about China. It's wealth growth in Europe, there's wealth growth in North America, there's wealth growth in all economies."
This strategy is already paying off for Mercedes, which posted a 12.7-percent profit margin last year after targeting just 10 to 12 according to Reuters. It comes at the risk, though, of neglecting lower-end offerings, which could backfire if supply chains resolidify, and allow competitors to scoop up customers abandoned by Benz. This could compromise relationships with suppliers seeking greater volume, while also straining Mercedes' relationship with labor unions—less production means lesser labor needs.
Pigeonholing itself as an ultra-luxury brand, though, seems to be an expression of confidence that the status quo will continue. That supply chains will remain fragile, that the rich will get richer, and that they'll continue trying to one-up one another's garages. The rest of us? Well, let them eat cake.
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