Handbags is an area I’m not very knowledgeable about. In our by now 28-year marriage, it’s been covered by my better half, in the last years with some support from our daughter, now in her mid-twenties. It’s by listening to the two of them that I’ve picked up that there’s handbags, and then there is Hermès. A Hermès bag is not something you walk into a shop and buy, even if you have the (considerable) cash necessary. Rather, it’s a bit like Ferrari in the car world. You can’t just buy some of them as you need to be part of the chosen ones to do so.
In a post back in October, I asked the question if Porsche was going bust, following Q3 results that showed a quarter on quarter loss compared to 2024 of 96%, I concluded that for a variety of reasons you can read more on in that post, that’s not the case, but also, that Porsche in spite of many qualities, does not have the brand value of a Ferrari – or a Hermès handbag.
If Porsche doesn’t, then the same can no doubt be said about the brand which invented the automobile, Mercedes-Benz. And unfortunately, a vulnerable brand is not the only thing the two have in common. Today therefore, we’ll turn our eyes to Sindelfingen near Stuttgart, Mercedes-Benz’s home since more than 100 years, because the odds are that it won’t be for the coming 100.
Bar Ferrari’s home town of Maranello, more legendary cars have come out of the Sindelfingen plant than any other car plant. If however you were to choose one model to embody the brand, it would most probably be the S-class, the car which not too long ago made up close to over 40% of sales in the luxury limo segment.
In 2022, Mercedes CEO Ola Källenius laid out the brand’s new strategy, calling it “economics of desire”. What he meant was basically that Mercedes should become a Hermès on wheels. He did so on the back of massive price hikes since 2019, made possible through demand outpacing supply after the Covid years, and Mercedes recording a EUR 20bn profit in 2022 with close to a 15% profit margin. As the strategy was laid out, it seemed the Sindelfingen brand and its CEO could do nothing wrong.
Actually the trend reversal had already started, although no one had really paid attention. In late 2021, Mercedes had sold its truck business. Boring certainly and not sexy at all, but a very reliable profit generator. Trucks were no more, only the smaller delivery vans were kept. And around the same time, the new electric S-class, the EQS, was launched.
Since it was shown to the public the first time in 2021, the EQS had received at best a lukewarm reception. Sure, it was an engineering masterstroke to design a car with a 0.20 wind resistance coefficient, and Mercedes were convinced it would sell on efficiency, in spite of its hefty price tag.
But efficiency is never what drove sales of the S-class, or any other luxury limo for that matter. Prestige is, something the EQS lacked. The soap-like, rather ugly outside was complemented by a high-tech interior rich in cheap plastic, all in all a package which was far from what S-class buyers were used to. The EQS lost on average 48% of its value in the important US market in the first year and not much less in Europe. Today, it’s not even hard to pick one up for less than a third of its original price.
Then, again under the banner of efficiency, Mercedes introduced the new, four-cylinder hybrid C63 AMG. The fall from grace that the AMG brand has seen is a story of its own, from being a builder of exclusive, mostly V8-powered cars, as described in my post from 2021, to being reduced to a sticker put on the sportiest version of every product line. The 2-litre, four-cylinder hybrid C63 received dismal reviews and will go down in history as a schoolbook example of not knowing your client and their preferences.
As if that wasn’t enough, the Chinese market that has been Mercedes’s cash cow in the last years, started to change. Domestic brands brought new cars to market much quicker than their Europeans counterparts, and especially younger, local buyers started seeing the Stuttgart brand like something your parents drove. Since 2023, Mercedes has lost 1/3 of its new car sales in its most important market. from around 750.000 to about 500.000 cars annually.
As the new year starts, Mercedes is no doubt happy to leave 2025 behind. Its profit dropped over 30% in 2025 compared to the year before, and corrective measures were urgently needed. With Källenius and the management team under severe pressure, they seem to at least have recognized the issues and have started to correct the gravest errors. No less than 40.000 workers have been offered to leave, and costs should be reduced by at least EUR 5bn until 2030. However, in the important US market, Mercedes is like every other European car maker subject to 15% tariffs on all cars built outside of the US, which for Merc includes notably the S-class.
As for the cars, restoring quality and reducing cheap plastics is high on the agenda. Combustion engines are making a comeback, and there’s even talk of future AMG’s running V8’s again. Is it too little too late? The future will tell and odds are certainly not rosy, not least as unlike Porsche, which is backed by the mighty Piëch family, and BMW, supported by the no less powerful Quandts, Mercedes doesn’t have that kind of backer or anchor investor. Over 70% of its shareholding is widely spread, and two of its larger, institutional shareholders are, of course, Chinese.
Mercedes will not go bust in 2026, there is still money in the bank. Hopefully, things can improve quickly, and confidence in the brand can be restored. It feels a bit strange as a simple blogger to state what should be obvious to the management team, but since it doesn’t seem to be, here we go: listen to your clients, that will not only save you a lot of time and effort, but perhaps even your brand.
Before we end, this was also the week when Elon Musk announced the first part of transforming Tesla from an automaker to a robotics company. The Model S and X will be discontinued in the coming weeks, on the back of the company’s first quarterly and annual revenue decline ever. That turn of events is something I predicted in my post on Tesla from the spring of last year, saying at the time we didn’t know what the future direction of the company would be, after cars. Well, now we know.
When the company that changed the auto world by introducing electric cars for the masses essentially leaves the industry, it’s a testament to things having changed for good. When it comes to EV’s, the future will be Chinese. When it comes to combustion cars, we can only hope that there is a future, in Sindelfingen or elsewhere, and that we get to keep them as long as Hermès’s Kelly bag!
































































































