Mercedes-Benz at a Breaking Point: Mass Layoffs, EV Woes, and the Fight to Stay Relevant in China
Mercedes-Benz at a Crossroads: Layoffs, Legacy, and the Fight for Relevance in China’s EV Era
It was a quiet admission of crisis, cloaked in carefully chosen words. In early April, every Mercedes-Benz employee—from the factory floor to middle management—will receive a letter. Its message: you can leave, and if you do, we’ll pay you generously to go.
For some, the severance could exceed €500,000. Others may receive over €100,000—figures that raised eyebrows not only in Europe but across the globe. The plan targets some 30,000 voluntary departures worldwide. Behind the numbers lies a sobering truth: Mercedes-Benz, once a global symbol of prestige and precision, is now struggling to adapt to a world it helped build—but no longer leads.
The company’s predicament is not unique. But the scope of its challenge—and its implications for the global auto industry—are profound.
A Legacy on the Defensive
Few brands carry the industrial gravitas of Mercedes-Benz. For more than a century, the German automaker has stood atop the pyramid of engineering excellence. Its three-pointed star graced the hoods of executive sedans and diplomatic convoys, embodying status, wealth, and power. But now, in 2024, that aura is fading—especially in China, the world’s largest car market and the cornerstone of Mercedes-Benz’s global growth strategy.
Sales in China dropped 7.3% in 2024. Pure electric vehicle (EV) sales plummeted 23%. Net profit fell nearly 28.4%. And in a particularly bruising blow, Chinese consumers—especially younger ones—have begun referring to the brand as "your father’s car," suggesting it is now more relic than aspiration.
“The reality is, they’ve lost their grip on the Chinese imagination,” one industry analyst noted. “The young generation doesn’t want a ceremonial car. They want intelligent driving, fast charging, and connected experiences. Mercedes isn’t delivering that at the speed China demands.”
In a market once seen as a limitless engine of growth, Mercedes-Benz has entered retreat mode.
A Calculated Retreat—or a Strategic Collapse?
The “voluntary departure” plan—soaked in euro-scale compensation—was intended to appear humane, even generous. But it’s also unmistakably urgent. Mercedes-Benz has been bleeding market share not only to traditional rivals but to a rising wave of Chinese EV manufacturers like BYD, NIO, and Xiaomi, which offer lower prices, cutting-edge tech, and faster product cycles.
Market share of Mercedes-Benz in China compared to Chinese EV manufacturers.
| Aspect | Mercedes‑Benz (Foreign Luxury Brand) | Chinese EV Manufacturers (e.g., BYD) |
|---|---|---|
| NEV Market Share Trend | Dramatically declined – now near negligible (<1% among foreign brands as of 2022) | Rapidly increased – domestic brands now capture over 30% of NEV sales by 2024; BYD alone holds ~34.1% of NEV retail sales |
| Product Strategy & Pricing | Relies on imported or locally built luxury models with a limited EV lineup and higher pricing | Leverages aggressive pricing, extensive EV/hybrid lineups, and state support to offer competitive, tech‑rich vehicles |
| Competitive Position | Struggles to adapt to China’s swift electrification trend and evolving consumer preferences | Benefits from vertical integration, lower production costs, and rapid innovation that drive substantial market dominance |
| Overall Trend (2019–2024) | Legacy luxury brands have lost ground amid a swift market shift toward electrification | Chinese EV makers have advanced to double‑digit market shares, reshaping China’s booming NEV market |
Critically, Mercedes' electrification strategy is faltering. The company’s pivot from internal combustion engines to EVs—long overdue—has been hampered by legacy thinking. Rather than building from the ground up, many of its EVs are retrofitted versions of gasoline models, a move critics have derided as "oil-to-electric patchwork." The result: bloated designs, lagging range, and declining consumer appeal.
“Their strength was once their engineering complexity,” a Chinese auto executive said anonymously. “Now that complexity has become a weakness. In this new game, it’s not about refinement—it’s about iteration.”
A Heavy Crown: Tariffs, Tensions, and Tough Decisions
Adding to Mercedes-Benz’s woes is geopolitical uncertainty. A European Union anti-subsidy probe into Chinese EVs has prompted Beijing to quietly signal that retaliation could follow if tariffs are imposed. In response, BMW Chairman Oliver Zipse made headlines by opposing new EU tariffs, warning that "a tariff war only has losers."
An anti-subsidy probe investigates whether foreign governments are unfairly subsidizing their domestic industries, giving them an unfair competitive advantage. Such investigations, like the EU's current probe, can lead to tariffs on subsidized goods, potentially impacting industries such as the auto industry by increasing import costs and altering market dynamics.
It was more than a warning—it was a plea. Mercedes-Benz and its German peers derive more than 30% of their global sales from China. For these firms, any deterioration in China-Europe trade relations could be catastrophic.
“It’s a balancing act,” said one China-based automotive consultant. “European politicians are playing to populist pressures, but business leaders know the real risk: if you lose China, you lose scale.”
Notably, Mercedes-Benz CEO Ola Källenius and BMW’s Zipse each met privately with China’s Commerce Minister Wang Wentao in Beijing on March 21 and 22. The rare back-to-back meetings highlight the urgency—and delicacy—of the moment.
Surrender or Survive: The Two Paths for European Auto Giants
Industry insiders suggest two survival strategies for European automakers facing China's dominance in electrification.
One is full integration: set up core teams, R&D, and supply chains in China, effectively becoming "Chinese companies in European skin." This path may mean sacrificing some brand purity, but it offers access to the fastest-evolving EV ecosystem on the planet, bringing traditional European brands to the forefront of the fiercest EV competition.
The other is strategic joint ventures. Stellantis' recent investment in Leapmotor and Volkswagen’s local partnerships suggest that collaboration, not confrontation, may be the wiser path.
Either way, the message is clear: Europe’s carmakers can no longer afford to view China as merely a market—it must become their laboratory.
Mercedes-Benz’s Internal Struggles: A Crisis of Culture
Beyond market dynamics, Mercedes-Benz faces an internal reckoning.
For years, the company has relied on a traditional dealership model, slow product cycles, and an organizational hierarchy often resistant to change. As Chinese competitors experiment with direct sales, user communities, and software-defined vehicles, Mercedes lags behind.
Even recent restructuring efforts—such as a 15% sales staff reduction and multi-billion-yuan localization investments—have been dismissed by critics as “tactical repairs, not strategic reinventions.”
There’s also the issue of innovation funding. While rivals like Tesla and BYD continue to ramp up R&D spending, Mercedes-Benz's investment dropped by 8% in 2024. Quality issues further eroded trust, with more than 1.37 million vehicles recalled over the past year due to manufacturing defects.
"The core problem is that their identity is built around engineering pride, not software," one tech executive said. “But the car is now a mobile device. If you don’t make that leap mentally, you’re doomed.”
Mercedes and the “Nokia Moment”
The Mercedes-Benz story is increasingly drawing comparisons to Nokia—the once-dominant mobile phone giant that failed to adapt to the smartphone era. Like Nokia, Mercedes may still enjoy global brand recognition, but that recognition is no longer synonymous with innovation.
In the words of a widely circulated German editorial: “What destroys century-old enterprises isn’t technological change itself, but the stubbornness of helmsmen navigating new routes with old sea charts.”
A sharp metaphor—and perhaps a prophetic one.
Looking Ahead: Reinvention or Resignation?
Still, Mercedes-Benz isn’t dead yet.
The company continues to generate strong free cash flow, enabling it to fund severance packages and maintain dividends. It has pledged 14 billion yuan toward localization in China. And it retains valuable institutional knowledge and brand capital—assets that can be revitalized if deployed wisely.
Mercedes-Benz annual free cash flow over the past 10 years.
| Fiscal Year | Free Cash Flow (USD Billions) |
|---|---|
| 2023 | 11.9 |
| 2022 | 10.9 |
| 2021 | 18.7 |
| 2020 | 15.0 |
| 2019 | –3.2* |
| 2018 | –11.3* |
| 2017 | –12.8* |
| 2016 | –5.6* |
| 2015 | –7.7* |
| 2014 | –8.3* |
*Note: In earlier years (2014–2019) capital spending often exceeded operating cash flows, resulting in negative free cash flow. Figures for 2014–2019 are based on publicly available historical data and are subject to revision.
But the window is closing. With Chinese EV makers gaining traction in Europe and global supply chains shifting, the cost of inertia is growing.
“The challenge isn’t just catching up,” said one market strategist. “It’s staying relevant. And in this market, relevance has a shelf life.”
Final Thoughts: A Time for Decisive Action
Mercedes-Benz’s voluntary layoff plan, EU-China tariff anxieties, and waning appeal among young consumers are all threads in a single, fraying tapestry.
The brand that once stood as a beacon of luxury and legacy now faces a fundamental question: Can it let go of what made it great in order to survive what comes next?
History shows that no company is immune to disruption—not even those with a century of success behind them. What happens next at Mercedes-Benz will not only determine its future—but may also redefine what legacy means in the electric age.