Mercedes-Benz Group AG has reported a decline in sales of its ultra-luxury vehicles, including the flagship S-Class, in the third quarter, posing a challenge to the automaker’s strategy of focusing on high-profit-margin cars. The company noted an 11% drop in orders for high-end Mercedes vehicles, totalling 69,900 units in the third quarter compared to the same period last year. Sales of the S-Class fell by 18%, with the Chinese market, the largest for this model, experiencing a 12% decline.
Under the leadership of CEO Ola Källenius, Mercedes has been directing resources toward its most expensive vehicles, such as Maybach limousines, AMG performance cars, and the G-Wagon off-roader. This shift is part of a broader strategy to move away from less profitable entry-level models like the compact A-Class.
Analysts, including Tom Narayan from RBC Capital Markets, have expressed concerns that if Mercedes’ sales mix continues to shift away from its most expensive models, it could impact the company’s full-year earnings, which are set to be announced on October 26. Mercedes had earlier forecasted group earnings before interest and taxes to be around €20.5 billion ($21.7 billion), and an automaking margin between 12% and 14% for the year, down from 14.6% in 2022.
One of the major challenges facing German carmakers is the weakening demand in China, a key growth market for years. Mercedes, like BMW AG, has seen a decline in sales in China, where the economy is grappling with the aftermath of severe coronavirus lockdowns and a property crisis that has affected consumer sentiment and growth. Additionally, rising interest rates are impacting car financing deals across segments, increasing the overall cost of purchasing Mercedes vehicles.
Mercedes did not provide a specific reason for the decline in high-end sales but mentioned that orders for its high-performance AMG cars were affected by model changeovers, and there were certification delays for the S-Class in the U.S. These challenges, along with broader economic factors, have contributed to the recent sales decline in the luxury segment.