Mercedes-Benz Cuts Jobs in China as Local EV Giants Reshape the Luxury Car Market

Mercedes-Benz’s Reckoning in China: Layoffs, Restructuring, and the Shock of Homegrown Rivals

A Decade of Dominance Meets a New Reality

For over a decade, Mercedes-Benz flourished in China, expanding aggressively and securing its position as one of the top luxury automakers in the world's largest car market. But 2024 has delivered a stark wake-up call. Sales are down, profits have slumped, and Chinese electric vehicle brands—once dismissed as fledgling startups—are now setting industry benchmarks.

Mercedes is responding with drastic measures: a 15% cut in its financial and sales divisions in China, an overhauled strategy that pivots from distribution to development, and an urgent push into EV and smart driving technologies. Behind the layoffs and restructuring is a deeper realization—the traditional luxury auto model is losing relevance in China, and the competition is no longer just BMW and Audi. Local players like BYD, Li Auto, and Nio have changed the game.

The Shock from Li Auto’s L9 and Huawei’s Smart Driving Tech

Every year, Mercedes’ top executives visit China for market research. But their most recent visit left them stunned. Industry insiders revealed that the Li Auto L9 caught the attention of Mercedes executives, prompting an internal shift in strategy. One senior official reportedly stated, “We need to benchmark against this vehicle.” Meanwhile, Huawei-backed brands, such as the AITO M9 and the Zhijie S7, have demonstrated smart driving capabilities that Mercedes now sees as an urgent learning objective.

How Did Mercedes-Benz Get Here?

1. A Slow Transition to EVs: While Mercedes was one of the earliest European luxury brands to announce electrification plans, its execution has lagged behind Chinese competitors. The EQ series failed to gain traction in China, with Mercedes’ global EV sales falling 23% in 2024, and even sharper declines in China.

2. The Challenge of Direct Sales vs. Dealership Networks: Chinese EV makers such as Tesla, Nio, and Xpeng adopted direct-to-consumer models that allow for flexible pricing, seamless customer experiences, and a high degree of control over branding and sales. Mercedes-Benz, still largely reliant on traditional dealerships, is now suffering from inefficiencies in its distribution network.

3. Chinese Luxury EVs Are No Longer Just About Price: The assumption that Chinese brands could only compete on affordability is outdated. Vehicles like the Li Auto L9, Nio ET9, and Xiaomi SU7 Ultra are positioned as high-end products with cutting-edge technology, large battery ranges, and premium interiors—competing directly with the S-Class and EQS.

Inside the Restructuring: From Sales-Centric to R&D-Driven

In response to mounting pressure, Mercedes has begun a sweeping restructuring in China. The company is shifting resources from sales and financial services to R&D, focusing on software, smart driving, and localized product development.

• Layoffs & Cost-Cutting: Mercedes is reducing its workforce in its financial and sales departments while maintaining its R&D staff. Employees who sign severance agreements immediately receive 11 months’ salary as compensation.
• More Investment in China: Despite the restructuring, Mercedes has committed over €140 billion in new investments for its Chinese R&D and EV production centers.
• The Rise of MB.OS: Mercedes is betting on its proprietary MB.OS software platform to power future EVs and enhance connectivity, smart driving, and AI-based services—an area where Chinese brands currently lead.

What It Means for Investors and the Global Auto Market

Short-Term Pain, Long-Term Survival?

Mercedes-Benz’s 31% drop in global profits and a 7% decline in Chinese sales in early 2024 signal a clear challenge. However, this restructuring is a strategic pivot rather than a retreat. By cutting sales overhead and reallocating funds into EV and software innovation, Mercedes is positioning itself for a technology-driven comeback.

For investors, key points to watch include:

• How effectively Mercedes can execute its shift from dealership-based sales to a more digital and direct model
• The success of its software-defined vehicle strategy and MB.OS integration
• Its ability to compete with Chinese EV makers on smart driving features
• Potential further layoffs or restructuring within its global operations

The New Auto War: A Reality Check for Legacy Brands

What Mercedes-Benz is experiencing today is not unique. The rise of Chinese EV giants has disrupted the global auto industry, much like how Tesla shook up traditional manufacturers a decade ago. BMW, Audi, and even Toyota are facing similar pressures as China moves toward an autonomous, software-driven, and electric future faster than any other market.

For Mercedes-Benz, this is not just about surviving in China—it’s about remaining relevant in the future of global mobility. Whether the German giant can successfully evolve or if it will fall further behind remains one of the most crucial questions in the automotive world today.