Mercedes-Benz, the renowned German luxury automobile manufacturer, has announced a sharp decline in its annual net profit for 2024, reporting a drop of 28.4% year-on-year, equivalent to €10.41 billion, according to recent financial disclosures.

This significant downturn reflects broader challenges facing the German automotive industry, a critical component of Europe's largest economy.

The year 2024 was characterized by a 4% decrease in vehicle deliveries, contributing to a 4.5% decline in revenue, which totaled €145.6 billion.

Luxury vehicle sales, which are crucial for maintaining high profit margins, saw a reduction of 14%.

This setback comes despite the company’s strategic emphasis in recent years on high-end models, raising concerns about an over-reliance on premium products, as highlighted in a January analyst report from Deutsche Bank indicating excess costs associated with these models relative to competitors.

The profitability margin for Mercedes-Benz has deteriorated considerably, with a sales margin of just 8.1% in 2024, a significant drop from 14.6% in 2022 and 12.6% in 2023. The company anticipates further contraction in 2025, forecasting a margin between 6% and 8%, along with a notable decrease in operating results for the upcoming fiscal year.

In the crucial Chinese market, which accounts for approximately one-third of its sales, Mercedes-Benz experienced a 7% decline in deliveries, facing intensifying competition from local manufacturers such as BYD, which recorded a 41% surge in global deliveries in 2024. Additionally, the firm has reported a slump in electric vehicle sales, with global deliveries of fully electric models plummeting by 23% to just 185,000 units, which is less than half of the electric vehicle sales reported by rival BMW.

As a response to these market dynamics, Mercedes-Benz has reevaluated its objective to transition exclusively to electric vehicles by 2030—five years ahead of the European Union's planned ban on combustion engines.

In January, Ola Källenius, the company's CEO and head of the European automotive manufacturers' lobby (ACEA), urged the EU to reconsider penalties aimed at manufacturers that do not meet 2025 CO2 emission reduction targets.

In a bid to stabilize its financial position, the company announced an austerity program in November 2023, aiming to reduce production costs by 10% by 2027 and realizing savings of ‘several billion euros per year.’ The announcement did not clarify whether layoffs are part of this cost-cutting strategy.

Notably, Volkswagen, a key competitor, revealed in December its plan to cut 35,000 jobs in Germany, along with relocating the production of its flagship Golf model to Mexico.

Despite the prevailing challenges, recent reports suggest a stabilization of operations for Mercedes-Benz in the last quarter of 2024. From October to December, the company reported a net profit attributable to shareholders of €2.48 billion, down 20.3% year-on-year.

However, global deliveries of vehicles saw a slight increase of 1%, marking the first rise for the year, driven in part by a recovery in China, which recorded a 3% increase in deliveries.

Looking forward, Mercedes-Benz is pinning hopes on its forthcoming electric coupe model, the CLA, set to launch in the spring to rejuvenate sales in the electric vehicle sector.

Additionally, a rebound in thermal vehicle sales in the United States may also benefit the company, although concerns over potential tariff increases promised by former President Donald Trump on European imports persist among German automakers.