Mercedes-Benz Announces Shift to Local Sourcing in China, Starting with Electric E-Class
Mercedes-Benz CEO Ola Kaellenius stated the company will overhaul its 20-year operating model in China by expanding local component procurement to reduce costs.
German automaker Mercedes-Benz Group CEO Ola Kaellenius announced on October 28 that the company will fundamentally change its business model in China, which has relied on producing vehicles locally while supplying components from Europe for the past two decades. The core initiative involves significantly expanding local component procurement to lower production costs and enhance pricing flexibility, aiming to address intensifying competition and declining sales in the Chinese market.
According to the newly released third-quarter results, the automotive division's adjusted operating profit fell to €560 million, a decrease of approximately 51% from €1.139 billion in the same period last year. The adjusted return on sales, a key metric for automotive profitability, dropped to 2.5% from 4.8% a year earlier. Citing fierce competition in China and expected increases in raw material costs in the fourth quarter, Mercedes-Benz lowered its full-year adjusted return on sales forecast for the automotive division from 3% to 5% down to 2% to 3%.
Kaellenius stated that future vehicles manufactured in China will source almost all components locally. The first model to implement this new strategy is expected to be the electric E-Class, scheduled for launch in the second half of 2027. Facing price wars, the CEO emphasized that Mercedes-Benz would not drastically cut prices to gain market share, but instead seek a balance between volume and profit, adjusting capacity at Chinese factories based on market demand.
Data indicates that Mercedes-Benz delivered 297,000 vehicles in China during the first nine months of the year, a 29% year-on-year decline, representing only about half the volume of the same period in 2023. China's share of Mercedes-Benz's global passenger car sales has fallen from roughly one-third several years ago to about one-fifth currently. Despite the weakness in the Chinese market, the company stressed it will not exit China and plans to offset losses by expanding its market share in the United States and other Asian markets. As of the end of September, net liquidity for the automotive and van business stood at €31 billion, indicating a relatively robust overall financial position.