Ola Källenius, CEO of Mercedes-Benz Group. (Alex Cross/Bloomberg)
key takeaways:
- Mercedes-Benz CEO Ola Källenius said in Finland that intense price competition in China’s auto market will likely persist for years.
- Chinese brands, led by BYD, are dominating EVs and targeting luxury buyers, contributing to Mercedes’ 30% China sales decline in the second quarter and industry restructuring.
- Mercedes opened German orders for the redesigned GLA on July 30 as it looks to rebuild sales of about 2 million vehicles annually.
Ola Källenius, CEO of Mercedes-Benz Group AG, expects fierce pricing competition in the Chinese car market to persist for years to come.
Chinese brands are spending “huge amounts of money” to enter the country’s luxury-auto segment to compete with Mercedes models like the S-Class and G-Wagon, the CEO said at an event near Helsinki, Finland.
“The competitive intensity in China — I don’t think it’s going to go away any time soon,” Källenius told reporters. “This is a new reality.”
Connected: Chinese ownership limits threaten Mercedes’ sales trajectory
Chinese manufacturers, led by BYD Co., are dominating electric vehicles in the world’s largest auto market, creating near-catastrophic pricing competition with rapid launches of new models. This has led to declining sales of not only Mercedes, but also Porsche AG, BMW AG and Volkswagen AG, Audi, which are restructuring to become leaner and more efficient.
Meanwhile, China’s luxury-car market has shrunk due to a long-running property crisis, which has largely weighed on purchases. In the top-end segment that also includes Mercedes’ AMG performance models, the German brand still “dominates”, Källenius said.
The CEO traveled to Finland to show off the new GLA, a compact sport utility vehicle aimed at boosting sales at the lower end of the company’s lineup.
Mercedes is offering the SUV in several drivetrains, including a fully electric SUV with a range of 657 kilometers (408 miles). German orders will open on July 30, with prices starting at around 48,600 euros ($55,300).
The launch is a test of whether Mercedes can rebuild sales without reducing profitability. The manufacturer needs models like the GLA to replenish its customer base as demand in China weakens and its focus on higher-priced vehicles becomes more sensitive to the global luxury slowdown. Mercedes is targeting a return to annual car sales of around 2 million in the medium term, compared with around 1.8 million last year.
When reporting earnings this week, Mercedes promised more cost cuts, particularly in Germany, to shore up returns after a 30% drop in second-quarter sales in China. Källenius said in Finland that the decline was no bigger than the decline in the country’s overall market. Mercedes is managing pricing in China “as carefully and economically as we can”.
The redesigned GLA is primarily aimed at customers in Europe, where demand for EVs is on the rise. The SUV has a lower silhouette and longer wheelbase than its predecessor, creating more interior space while giving the model a sporty look.
The car “looks like a Predator,” Källenius said.
