Mercedes to cut lower-price models amid drive into luxury

Mercedes says it will funnel 75 per cent of its investment into its luxury brands. Photo / New Zealand Herald

Mercedes-Benz has said it will drop some of its cheaper models and focus on the more profitable luxury end of the market.

The German carmaker will recast itself as "a dedicated pure-play luxury car company", it said, in an attempt to take on rivals such as Ferrari.

Car manufacturers including Mercedes have enjoyed a period of high profits as wealthy people sitting on cash piles after two years of lockdowns look for ways to spend their money.

A shortage of parts, most notably computer chips, has prompted carmakers to charge more for their vehicles, improving margins. Last month Mercedes said revenues for the first three months of the year jumped 8 per cent despite selling 52,000 fewer cars as a result of higher prices, and after more of its top-end models rolled off the production line.

Mercedes says revenues for the first three months of the year jumped 8 per cent. Photo / New Zealand Herald

The company will drop the number of entry-level models from seven to four and focus its efforts on high-performance AMG and limousine Maybach models, funnelling 75 per cent of its investment into its luxury brands.

Ola Källenius, chairman of the board of management of Mercedes-Benz, said: "What has always been the core of our brand is now also the core of our strategy: the luxury segment. We are further sharpening the focus of our business model and product portfolio in order to maximise the potential of Mercedes-Benz even in challenging conditions. At the heart of that is our goal to build the world's most desirable cars."

Since Ferrari floated in 2015 it has attracted a high valuation for a car company, with multiples of earnings closer to those of a luxury company. Ferrari has a valuation of more than 30 times its 2021 profits, while Mercedes-Benz is worth a more modest four times its earnings last year.

Mercedes-Benz will drop some of its cheaper models and focus on the more profitable luxury end. Photo / New Zealand Herald

Mercedes is also racing to electrify its fleet, with plug-in hybrids and battery-powered cars making up about an eighth of sales. The company plans to have an electric competitor in each model range this year, and will sell only electric cars from 2030.