Summary of Key Points
Mercedes-Benz is undergoing a series of ongoing personnel adjustments in the Chinese market. These changes have affected various departments, from sales and finance to IT in 2025, and have expanded to include research and development (R&D) and manufacturing in 2026. The measures taken range from layoffs to non-renewal of contracts and business downsizing, with compensation levels varying from one company to another. The underlying reasons for these adjustments are three consecutive years of declining sales (7% in 2024, 19% in 2025, and 27% in Q1 of 2026). The lag in transitioning to new energy vehicles has weakened the brand's competitiveness, compounded by global pressure to reduce costs. The Chinese market, once a major source of profits for Mercedes-Benz, is now experiencing a slowdown due to consumers shifting towards smart electric cars. As a result, the company is forced to scale back its operations and restructure its organization. It faces the challenge of either becoming more deeply localized or being marginalized in the Chinese market.
1. Layoffs Are Not Limited to Specific Departments; The Entire System Is Being Streamlined
Mercedes-Benz's personnel optimization in China is not a temporary measure for just one department but affects nearly all core areas, including sales, R&D, manufacturing, and finance:
- Sales: Beijing Mercedes-Benz Sales Service Company plans to reduce its workforce from 900 to less than 600 employees, with already 10% having been laid off, compensated according to the N+6 policy.
- R&D: The R&D centers in Beijing and Shanghai, which employ around 2,000 people, are expected to see a 10% reduction this year. However, this will not be done through direct layoffs but rather by not renewing contracts or adjusting staffing levels, with compensation ranging from N to N+9.
- Manufacturing: The Beijing Mercedes-Benz plants in Yizhuang and Shunyi have already laid off more than 2,000 employees last year, affecting departments such as production, logistics, and planning. Compensation here generally ranges from N+1 (based on negotiated departures), with some employees receiving no compensation for voluntary resignations.
- Other Areas: The IT and automotive finance departments also underwent layoffs in 2025, with approximately 10% of the workforce being affected, and the highest compensation offered was N+11.
These adjustments are not uniform but are being implemented in phases to minimize the negative impact as much as possible. However, the overall trend of downsizing is clear.
2. Three Years of Consecutive Sales Declines: The End of the Traditional Luxury Brand's Easy Profits
Mercedes-Benz's success in China was built on the brand premium associated with its fuel-powered vehicles. This strategy no longer works:
- Dramatic Sales Drops: Sales plummeted from 683,600 units in 2024 to 551,900 units in 2025, and continued to decline by 27% in Q1 of 2026. The target market size has shrunk from millions to just 500,000-600,000 units.
- Changing Consumer Preferences: In the past, consumers valued Mercedes-Benz for its brand, engine performance, and chassis quality. Nowadays, they place more emphasis on smart features such as infotainment systems and advanced driving assistance technologies (according to McKinsey research, these factors account for 61% of purchasing decisions, compared to just 28% for brand history).
- Weak New Energy Products: Early EQ models were unsuccessful, and the all-electric CLA ( priced at 229,000 yuan) sold only 161 units in May. The upcoming all-electric GLC (priced at 349,500 yuan) faces fierce competition from Chinese brands like Li Auto, WM Motor, and Tesla, which have already established advantages in smart technology and charging infrastructure.
In short, Mercedes-Benz can no longer rely on its iconic brand to command high prices; it must now demonstrate genuine technological capabilities to attract customers.
3. Difficulties for Employees
Employees are facing significant challenges:
- Reduced Benefits: Wellness programs, such as gym membership cards, have been cut or eliminated in Beijing, and other benefits are being reduced.
- Increased Workload: R&D teams used to finish work at 6 pm but now often work overtime into the evening or on weekends.
- Loss of Job Security: Many employees feel uncertain about their future, with frequent changes in policies (e.g., contracts not being renewed) and rumors of more layoffs.
- Slower Production Pace: Due to declining sales, factories have reduced operating hours; for example, the engine department had a ten-day break in April and a five-day holiday during the Dragon Boat Festival, affecting employees' incomes.
The once comfortable working environment has become much more stressful, with employees struggling to maintain their jobs.
4. Slow New Energy Transition: Old Advantages Have Become a Burden
Mercedes-Benz's problems are not due to a lack of desire to transition but rather a slow pace and adherence to old ways of doing business from the fuel-powered vehicle era:
- Obsolescent Technologies: Skills gained in the fuel-powered vehicle era (engine and chassis development) are no longer valuable in the electric vehicle market. Consumers demand smart driving features and advanced infotainment systems, areas where Mercedes-Benz lags behind Chinese brands (for instance, the CLA uses Momenta's technology for assisted driving, not its own).
- Delayed Product Development: Early EQ models were merely electrified versions of traditional fuel-powered vehicles, not truly designed for electric use. The all-electric GLC, despite a price reduction, competes in a market already dominated by Chinese brands with differentiated offerings.
- Internal Inefficiencies: The company has struggled to adapt quickly to changes in the Chinese market, with multiple layers of management and slow communication, resulting in slower product updates compared to Chinese competitors (which may release new models annually, while Mercedes-Benz might take up to two years).
Mercedes-Benz is falling behind as other companies are rapidly moving towards smart electric vehicles.
5. A Narrow Path Forward: Localization or Marginalization?
To turn things around in China, Mercedes-Benz has two options, both of which present challenges:
- Deep Localization: Collaborating with Chinese partners to use local smart technologies and supply chains to reduce costs and accelerate product development. However, this would dilute the brand's "German luxury" image, requiring the company to re-establish its unique value proposition.
- Maintaining the Status Quo: Continuing to rely on brand premium to sell vehicles, but sales will likely continue to decline, potentially leading to a niche luxury brand with a small market share.
Industry analysts suggest that if China's new energy industry maintains its lead, traditional luxury brands like Mercedes-Benz could face the same fate as European and American brands in the past, being marginalized by Japanese and Korean competitors.
In summary, Mercedes-Benz's difficulties in China are not just temporary sales fluctuations but represent a "structural crisis" for traditional luxury brands in the new era of electric vehicles. The company's former advantages have faded, and new ones have not yet been established. The layoffs are merely a manifestation of this broader crisis.
Final Conclusion
Mercedes-Benz's golden days in China are over. It must either adopt Chinese technologies and speed up its product development to compete with local brands or accept becoming a niche luxury brand with a smaller market presence. There is no easy way out.