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Daimler to cut fixed costs as part of broader overhalling

Daimler will cut fixed costs, capex, and R&D spending at Mercedes-Benz by over 20% by 2025 as part of a strategy overhaul to take the brand further upmarket.

The move will see Mercedes-Benz, presently the world’s top-selling premium car brand, turn its back on a decades-old strategy of chasing sales figures to concentrate on the industry’s most profitable segments: limousines and sport-utility vehicles.

CEO Ola Kaellenius informed investors that compact vehicles like the Mercedes-Benz A and B-Class had helped recover the brand, but this would not be where Daimler would prioritize resources going forward.

“This is not where the main thrust should go, we should not become a competitor of the volume makers,” said Kaellenius in the virtual strategy presentation on Tuesday. “The premium luxury segment usually has above-average growth.”

In place of chasing volume for its own sake, Mercedes-Benz will aim to double sales of high-end Maybach branded vehicles, which retail for 150,000 euros ($177,000) or more and increase sales of AMG and G-Wagon derivatives, including electric variants.

Because of more efficient manufacturing techniques and less fixed costs, Mercedes-Benz will aim for a double-digit return on sales margin by 2025 in good market conditions, or a mid to high single-digit margin when markets are weak, the automaker said.

Cost cutting and efficiency measures consist of eliminating manual gearboxes and cutting the variety of combustion engines on offer by 70% by 2030. About 5,000 staff have agreed to accept buyouts or early retirement, the automaker said.

New vehicle platforms, including a second electric vehicle architecture known as MMA, will take less time to build, just like the new Mercedes-Benz S-Class, which takes 25% less time to assemble compared to its predecessor.

For its electric vehicles, Daimler is looking to cut the cost of battery systems to below 100 euros per kilowatt-hour by mid-decade and an electric limousine, the EQS, is on track to hit showrooms by 2021.

Daimler also aims to introduce a new software vehicle operating system, known as MB.OS, by 2024 and to use over-the-air updates to generate an operating profit of 1 billion euros ($1.17 billion) by 2025 from digital services, including parking and charging.

The COVID-19 pandemic led to a decline in sales, pushing the company to operate losses in the first and second quarters.

To deal with the losses, Mercedes-Benz has stopped building sedans in the United States as they focus on more profitable SUVs, combined its fuel cell development with Volvo Trucks, and stopped an automated development alliance with BMW.

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