Weekly Brief: Mercedes-Benz Tells the Masses ‘Look Elsewhere’

Commentary By Andrew Tolve

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30th May 2022

Mercedes-Benz isn’t for the average Joe.

To the contrary, at a recent investor meeting on the Cote d’Azur, the German carmaker proudly declared itself a “pure-play luxury car company” that will be, in the future, solely focused on the rich. Mercedes-Benz plans to recalibrate its product portfolio away from entry-level models, allocating more than 75% of its investments to develop products for the most profitable market segments. As part of this strategy, Mercedes-Benz aims to grow the sales share of its top-end vehicles by around 60% by 2026 versus 2019 and plans to be 100% electric by 2030.

The carmaker will reduce the number of its entry-level vehicles from seven to four while significantly elevating the technological substance of these products, making them entry-level only for the wealthy. “What has always been the core of our brand is now also the core of our strategy: the luxury segment,” said Mercedes-Benz CEO Ola Kallenius. “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.”

Mercedes-Benz’s decision is guided by the past two years of the pandemic and the past eight months of supply chain havoc that have ensued. Maintaining a volume-based approach has become a vexing challenge in 2022. When there’s a restricted number of semiconductors at your factory, you have to decide which vehicles you’re going to plug them into – expensive or entry-level. Mercedes knows which way it wants to go. We’ll see if BMW makes a similar pivot or whether it maintains a more expansive view of the market moving forward.

The numbers seem to be on Mercedes’ side. Last week J.D. Power released its 2022 US Electric Vehicle Consideration Study, which confirmed what many of us already know: Consumers who have bought EVs or are considering buying them are, in general, more affluent. They have homes where they can comfortably fit a home-charger and multiple bays to accommodate their multi-car households, allowing them to deflect range concerns with the security of a gas-powered sidekick. The study found that one of the biggest reasons people are unlikely to consider buying an EV is because they lack access to charging infrastructure in their homes or at their places of employment. Paul Myles has more on the J.D. Power study.

If carmakers are going electric, it thus makes sense to cater to the rich. That being said, at a time when the income inequality gap grows ever wider and when too many people can’t afford a home, let alone an automobile, being so unabashedly for the rich seems a little off-putting, if not morally dubious.

In other news last week, Hyundai used President Joe Biden’s visit to Seoul, South Korea, to announce a $10Bn investment in advanced technologies in America. The carmaker will steer its investment over the next three years toward robotics, electrification, urban air mobility and autonomous driving. Part of the money will go toward a new EV factory and new battery facility in Georgia. Hyundai also announced a $16.5Bn investment to expand its EV offerings in Korea by 2030.