A-Class rides again: Mercedes goes for growth with huge sales push

At its recent capital markets day, Mercedes-Benz reintroduced a word not touted much by the company since its famous ‘Economics of Desire’ pitch to investors in 2022, overlooking the Cote d’Azur. “I don't think I've heard the word ‘growth’ as often from you guys since Monaco,” said Tim Rokossa, analyst at Deutsche Bank, during the Q&A session. “Is ‘value over volume’ over with this announcement?” Mercedes had just announced that it was going to start growing sales again, lifting its annual target from 1.8 million in 2025 to around 2.0m in "the medium term". This new strategy seemingly goes against the grain of the 2022 plan, which was to shrink volume to focus on only the most profitable cars, including reducing the entry-level model line-up from seven to four. This was illustrated in Monaco with a diamond that flipped along a timeline so that upon plan completion the fatter end represented top-end models like AMGs instead of entry-level cars like the low-margin A-Class. But the world is now a very different place. Mercedes' profit margins fell well below analyst expectations for the fourth quarter of 2025, at just 2.4%. That’s compared with an eye-opening 16.4% for the second quarter of 2022, just ahead of the Monaco event. Back then, computer chip supply constraints were forcing production cuts across all car makers, lifting prices and giving momentum to multiple ‘value over volume’ strategies. In the past two years, however, most bigger-volume car makers have given up trying to convince investors that they can grow profits by restricting sales to only the most profitable sectors and channels. Mercedes clung on, allowing its sales volume to fall from just over 2.0m in 2022 and 2023 to 1.8m last year. But the plan isn't working. In the last quarter of 2024, the average selling price of Mercedes cars has fallen back to €52,765 (£46k) from the heady €71,500 of the second quarter of 2022. Today’s figure is closer to that of 2019, before the ‘economics of desire’ were born. Mercedes' biggest problem is China, still its largest market, despite sales dropping 19% last year to 551,932. The quality of those sales is dire: in the last quarter, the average selling price of Mercedes cars in the world’s most competitive market was just €22,896. Contrast that figure to the US, in which Mercedes’ average selling price over the same period was a whopping €92,027, helped by the market’s love of big SUVs, such as the Alabama-built GLE and GLS. But there’s also pain in the US, which suddenly raised import tariffs last year to the point that Mercedes’ tariff bill was around $1 billion last year, incurred from shipping saloons and more niche models from Europe to the US. The bill will go up next year, CEO Ola Källenius warned. “It's going to be a significant number,” he said. The extra volume needed to hit 2.0m sales will partly come from the decision to replace the A-Class next year. This was justified for its ability to funnel younger customers into the ownership pipeline. “That's where the 28-year-old version of yourself gets to know the Mercedes brand first,” Källenius said, adding that the model design was “hot as hell”. He reassured investors that the decision to raise volume will be done with a protective view of the bottom line, saying: “This is still profitable growth." Prices will be bolstered by new metal. Before the A-Class, Mercedes is poised to launch a swathe of models in the first half of this year, including the electric GLC EQ SUV and C-Class EQ saloon and, on the ICE side, a new S-Class, a Maybach version of that and a new GLE SUV and its Coupé derivative. The VLE van-based MPV is also due. Mercedes has also worked hard on reducing costs, including those production. Key is the company’s revamped plant at Kecskemét in Hungary, where the new A-Class will be built. Capacity at the plant will grow to 400,000, helping to defray expensive production costs in Germany. Production at the Hungarian plant is around 70% cheaper than in Germany, finance head Harald Wilhelm told investors. China remains a big question mark in terms of Mercedes’ ability to grow, however. Being able to make the case for the stabilisation of its Chinese market share amid a plummeting demand for Western premium brands in general is one of “two critical tests” that Mercedes has to pass to convince investors, Jefferies bank analyst Philippe Houchois recently wrote in a note. The other is a the successful roll-out of Mercedes’ MB-OS software to all models, including those with combustion engines. Mercedes application of software and software-enabled technology like eyes-on, hands-off autonomy ('level two plus plus' in the jargon) is key to China, Källenius said, but sales of the company's newest car, the CLA four-door coupé, aren't going well in the market. Mercedes’ head in China (and rising star) Oliver Thöne explained this was because the model was niche in a market where premium cars are getting ever bigger and because Mercedes refuses to join in the discounting bun fight. “We did not participate in those measures,” Thöne said. “We believe that the substance of the product will require a certain amount of time to be fully understood and fully appreciated.” With China still its largest market, however, Mercedes will struggle align growth and profit on a global level unless it can halt the price plummet there while keeping sale numbers up.

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A-Class rides again: Mercedes goes for growth with huge sales push

As rival manufacturers reversed their profit-maximising strategies, Mercedes held firm – but it hasn't worked

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A-Class rides again: Mercedes goes for growth with huge sales push

As rival manufacturers reversed their profit-maximising strategies, Mercedes held firm – but it hasn't worked

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