Another profit warning increases the pressure on Mercedes: costs have to come down and new models have to be on the road more quickly. A more modularized architecture based on the Chinese model should help. But does the modular principle suit a premium brand? Experts see significant risks.
Mercedes must become faster and cheaper in production and development. A principle that has so far been used primarily by mass manufacturers is intended to help: a modular system in which as many models as possible use the same technical modules. The group could thus simplify development and production and save considerable costs.
The latest profit warning shows how urgent this is. Last week, Mercedes again lowered its forecast for the adjusted return on sales in the passenger car business: for 2026, the group expects that only two to three percent of every euro collected will remain as profit, instead of the previous three to five percent. Mercedes cited higher costs and weak business in China as reasons, among other things.
To date, Mercedes has used different technical platforms depending on vehicle size and drive type. In the future, more components and modules could be used across different models. As the “Handelsblatt” reported, a new architecture is planned for the model generation of the 2030s. Mercedes has not yet confirmed the report, but speaks of a “very ambitious future plan”.
What the kit could bring
For Ferdinand Dudenhöffer, more modularized production is fundamentally an important lever for reducing costs. “Production shapes the cost structure like no other variable,” says the car expert in an interview with ntv.de. He compares the principle with Lego: "With large prefabricated parts, you are quicker with Lego than with small building blocks." Applied to car manufacturing, this means that larger modules are standardized and can be used in different models. This reduces the effort involved in development and assembly.
To date, Mercedes has used different platforms for electric cars and vehicles with combustion engines in mid-range models such as the GLC and larger series such as the S-Class. In the future, however, more components could be used together and the bodies of the different drive types could be more standardized. This allows models to be developed more flexibly on a common technical basis.
The electric car pioneer from the USA, Tesla, is also pursuing a modular production concept with its so-called “unboxing”. Large vehicle modules are assembled in parallel and only joined together at the end. This process is being tested on the new Robotaxi Cybercab. It is not known whether Mercedes wants to take a similar approach to its planned architecture.
Dudenhöffer considers the potential savings through modular construction to be significant. He estimates that “20 percent plus X” is possible in the body shell construction alone. But the new architecture can only be part of the solution. Mercedes also has to cut costs elsewhere and regain ground in the competition.
From Dudenhöffer's point of view, an expansion of weekly working hours to 38 or 40 hours could play a role. Regardless, China remains a particularly difficult market for Mercedes. So far, no Western premium manufacturer has found a convincing way to reverse the decline in sales there - not even Volkswagen, which is taking countermeasures with its "In China, for China" strategy.
Potential for billions, but with a start
Frank Schwope also believes that greater standardization can bring savings. The lecturer at the Fachhochschule des Mittelstands in Berlin sees Mercedes lagging behind when it comes to modular vehicle architectures. “Mercedes seems to be lagging behind others when it comes to modular architecture,” he tells ntv.de.
A modular system can reduce costs in several areas: in purchasing, in the development of common modules and in production. Taken together, savings amounting to billions of euros per year are conceivable, according to Schwope's estimate. However, it will take some time for this effect to occur. The standardization must first extend through the various series. To achieve this, new models must be developed and production changed.
Schwope therefore expects that the investments will only pay off in the early 2030s. BMW's "New Class" shows how lengthy such a conversion can be: First, a lot of money has to flow into a new technical basis. Its economic benefit only arises when it is used in several models.
Jürgen Pieper is even more critical of Mercedes' possible course. “Mercedes doesn’t have the situation under control,” says car analyst ntv.de. In principle, he also thinks a modular system makes sense, but only to a certain extent. “A modular system is fine to a certain extent, but here at Mercedes it seems like an emergency solution,” he says.
He justifies this by saying that such a platform strategy has traditionally been more for mass manufacturers. Premium producers, on the other hand, have always placed great emphasis on greater differences between their series. For Mercedes, the question arises as to how much standardization is possible without diluting the independence of the models - and thus part of the premium claim.
Pieper's criticism goes beyond architecture. Sales are not only weak in China. Mercedes is losing ground, especially to BMW and Tesla. So far, Chinese manufacturers have had less direct impact on the Stuttgart premium supplier because they have a different price and product structure.
However, Pieper does not question the savings potential of the modular system. Like Schwope, he thinks around one billion euros per year is possible - but only after three to five years, once standardization has spread through the relevant series. Pieper sees the greatest savings potential in this order: in purchasing, in development and in model policy.
The challenge for Mercedes is not just to make production more efficient. The group must reduce costs, accelerate its development and at the same time maintain the independence of its models. The modular system can only be part of the solution. Whether it becomes a competitive advantage also depends on how well Mercedes manages this balancing act.
The conversion takes time, which Mercedes hardly has
Until the possible savings from a modular system are reflected, the group must stabilize its earnings situation in other ways. The “Next Level Performance” program is currently intended to reduce material, production and fixed costs. In addition, management wants to increase productivity and reduce labor costs in Germany. The dispute over this is putting a strain on relations with the works council and IG Metall.
The big challenge is not to jeopardize what makes the brand with the star special during the conversion. Too much standardization or a hasty production pace could be at the expense of quality. Dudenhöffer therefore warns against assembling cars at a "monkey's pace" if the product suffers as a result. Production must become cheaper and faster without weakening quality.
That's a fine line for a premium manufacturer. And the path there will likely be difficult for shareholders too. Dudenhöffer expects that Mercedes “probably won’t spoil” her in the next three to four years. After that, from his point of view, things could get more interesting again.
