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Business & Finance

Daimler to cut fixed costs by more than 20pc in luxury drive

  • This will allow Mercedes-Benz to achieve a return on sales within a mid to high single-digit range even when markets are weak, by 2025, the carmaker said.
06 Oct, 2020

FRANKFURT: Daimler said on Tuesday it will cut fixed costs, capex and research and development expenditure by more than 20pc by 2025 as part of a strategy overhaul to reposition Mercedes-Benz as a more high-end luxury brand.

Chief Executive Ola Kaellenius told investors that compact vehicles like the Mercedes-Benz A and B-Class vehicles had helped rejuvenate the brand, but would not be the main priority for devoting resources in future.

"This is not where the main thrust should go, we should not become a competitor of the volume makers," Kaellenius said during a virtual strategy presentation.

Mercedes-Benz plans to achieve a double-digit return on sales margin by doubling sales of Maybach branded cars, and ramping up sales of AMG and G-Wagon derivatives while slashing costs and increasing economies of scale on new platforms.

It would aim to cut fixed costs by 20pc by 2025 from 2019 levels and place more emphasis on margins rather than volumes.

"We will pursue higher portfolio profitability, we will steer by contribution margin, we will move (the) existing portfolio margin up and move capital to luxury and high-end products," Chief Financial Officer Harald Wilhem said during the presentation.

This will allow Mercedes-Benz to achieve a return on sales within a mid to high single-digit range even when markets are weak, by 2025, the carmaker said.

Cost cutting and efficiency gains will help lower the company's break-even point. Manual gearboxes will be dropped as an option, and the variety of combustion engines on offer will be cut by 70pc by 2030.

Luxury cars will also take less time to build.

The new Mercedes S-Class takes 25pc less time to assemble compared to the predecessor generation vehicle, Daimler said.

Margins will improve as purchasing costs come down. For its electric cars, Daimler is seeking to cut the cost of battery systems to below 100 euros per kilowatt hour by mid decade.

The Mercedes-Benz EQS will be launched next year, Mercedes said.

Daimler aims to release a new software vehicle operating system, known as MB.OS, by 2024 and to use over-the-air updates to generate an operating profit of 1 billion euros ($1.18 billion) by 2025 from digital services which include parking and charging transactions.

Daimler has already cut costs as the coronavirus pandemic led to a slump in sales, pushing the German company to operating losses in the first and second quarters.

To counter losses, Mercedes-Benz stopped building sedans in the United States to focus on more profitable SUVs, combined its fuel cell development with Volvo Trucks, and halted an automated development alliance with BMW.

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