The German Gambit: Why Mercedes-Benz is willing to sacrifice sales in China

Motorists were waiting for the opening of the Munich Motor Show (IAA) for the sake of two premieres - BMW IX3 and Mercedes-Benz GLC electric cars. The premieres took place, but the most memorable were program comments of the head of Mercedes-Benz concern Ola Källenius. Presenting the GLC, he made it clear that even at the European motor show he thinks about sales in China: they should remain marginal, albeit to the detriment of volumes. The success of the new model will determine the new market strategy of the company in the segment of electric cars and hybrids: everything that is successful in China will bring money in other regions.

Presenting the new products, Källenius knew that his company could not boast of sales growth in 2025. In the second quarter of this year, the Mercedes-Benz passenger car division sold 453,700 cars, down 8.7% from the second quarter a year earlier, and 899,97,000 (minus 6.2%) in the first half of the year. Asia accounted for more than 40% of sales. Revenue for the half-year from sales of passenger car models amounted to €48.4 billion, down 8.5% year-on-year. Return on sales (RoS) was 5.1% in the second quarter and 6.2% for the first half of 2025.

And the profitability of sales will not grow. Due to import duties in the USA, Mercedes-Benz has reduced its annual benchmark for this indicator to 4-6% (the concern has assembly of models directly in the USA, but some models for the North American market are assembled in Mexico).

And in the Chinese market, sales growth is limited by price wars of Chinese manufacturers, who want to increase their shares in the domestic market at any cost. In the second quarter, sales of the German brand in China decreased by 19% to 140.4 thousand cars year-on-year. However, the manufacturer from Stuttgart has an unexpected ally in the face of national regulators.

On Ma 31, 2025, China's Ministry of Industry urged automakers to stop the "brutal" discount race. In July, China's State Council (National Development and Reform Commission) pledged to crack down on "irrational competition" through price monitoring and supplier settlement control, and amended legislation to ban below-cost sales. The authorities assume that constant discounts and negative trading eat into the profits of factories and dealers, accumulate debts with suppliers and kill healthy competition

In this situation, Mercedes-Benz openly announced its withdrawal from the race for volume in full compliance with the "internal line" of the Chinese authorities. The manufacturer will not chase volume, the head of the concern Ola Källenius made it clear on the eve of the Munich Motor Show. It is better to maintain profitability and update models to reflect local and global preferences, to bet on premium pricing. "This car (the new e-GLC - note) will hit exactly the expectations of Chinese Mercedes buyers," said Källenius, not embarrassed to be speaking to the European press in the EU.

The profitability of dealer sales in Beijing and Shanghai is important to top managers from Stuttgart because the PRC is the largest single market for cars with the star on the grille.

In 2024, it sold 683.6 thousand Mercedes cars, and the total sales result worldwide was 1.983 million cars. In the first half of 2025, the Chinese took away 293.2 thousand cars in the showrooms of the German Mark, with total sales of almost 900 thousand units. In other words, every third car on the Mercedes-Benz assembly lines is a car for China.

But most importantly, China remains the world's largest market for electric vehicles. For example, sales of electric cars and hybrids in August 2025 added 7.5% year-on-year, or about 1.1 million units, or 54.6% of the retail market. This preponderance in favor of vehicles without internal combustion engines or hybrids was recorded for the sixth consecutive month.

In the market for cars without internal combustion engines, it is important to fulfill two conditions for success: controlling production costs and constantly improving the functionality and interface of the cars.

Buyers' perception of premium and luxury comes not only from the leather interior or original colors, but also from the ease of navigation, the speed of software updates and new features (such as autopilot). It is possible to maintain a margin on sales if your product plays in the same league as the iPhone in the phone market - a beautiful and technologically advanced item priced above most competitors.

The German brand's technical director Markus Schäfer, speaking at the IAA, emphasized that the company is "not afraid" of Chinese rivals in electric cars, although it is accelerating cheaper production "in close liaison with the Chinese development team." That team includes many local champions.

In China, the Mercedes partner network is organized around an anchor JV - BBAC (Beijing Benz Automotive Co.) in Beijing - with China's state-owned BAIC. Here, key models, powertrains and battery systems are produced locally, which reduces production costs and logistics and allows for faster introduction of "Chinese" versions of models.

BAIC is also a shareholder of Mercedes-Benz Group (owns a 9.98% stake).

Partner company Tencent is responsible for the software and user experience: its cloud and content services are embedded into the MB.OS/ADAS digital architecture and multimedia, so that navigation, maps, entertainment and even gaming content are tailored to the habits of Chinese drivers.

Mercedes-Benz's electrification in the Chinese market is based on a strategic partnership with CATL, a Chinese manufacturer of traction batteries for electric vehicles.

Finally, there is a joint venture with local manufacturer Geely (the second player after BYD in the market of electric cars and hybrids in China) to develop the Smart brand in China. In essence, the partner acts as an assembly site and sales channel for the Stuttgart-based automaker.

This network of alliances has developed historically, but now allows Mercedes to bet on developing and expanding its lineup of electric vehicles that enter both Chinese and other markets.

In part, this policy is a response to Euro bureaucrats who have failed to make the conditions for the development and sale of electric cars in the EU as attractive as in the PRC or the US.

Two years ago, on September 13, 2023, after the Munich Motor Show, European Commission President Ursula von der Leyen said in her State of the Union speech that "global markets are flooded with cheaper Chinese electric cars whose price is artificially low due to massive state subsidies" and announced the launch of an anti-dumping and anti-subsidy investigation into Chinese EVs.

In 2025, a major European automaker says it will focus on profits in China and models sold there and around the world. Instead of demanding an investigation and asking for market protection.

Investors, who are interested in the market plans of companies in contrast to the technical side of new products, pay attention to the fact that Mercedes-Benz needs to rely on premium and maintain margins in order not to lose to the same competitors from China in other markets in the future.

For example, JPMorgan calls 2026 a "strategic turning point" for China's BYD, the world's largest manufacturer of hybrids and electric vehicles. Four of its plants outside China will be fully operational next year, with sites in Thailand, Indonesia, Hungary, Brazil and Turkey reaching full capacity. This will allow the company to increase its share of revenue from sales outside the Chinese market to 50%, making it a global player like Toyota Motor Co. (BYD started its business by assembling its models).

If we evaluate the statement of the head of Mercedes-Benz with such assessments in mind, it turns out that the German automaker has derived a new development formula for itself: maintaining business in China is the key to maintaining and expanding the sales market outside the Asian country.

This article was AI-translated and verified by a human editor