Mercedes-Benz is down bad — picture Homer Simpson in a wheelchair looking out the window kind of bad (while Tesla’s probably popping bottles on Mars). Tesla’s stock just enjoyed its best day in over a decade (10% gain) after its earnings report for Q3 showed an impressive 20% operating margin. At the same time, Mercedes’ Q3 numbers are less “gold star” and more “could do better”: profits halved, driven down by crappy demand in China and feisty local competition (turns out, not everyone’s ready to empty their bank accounts for a three pointed star anymore).

CFO Harald Wilhelm didn’t dance around the truth: “The Q3 results do not meet our ambitions.” In other words, the numbers are as underwhelming as they look. Their adjusted return on sales fell hard, dropping to 4.7% from last year’s much healthier 12.4%.

China was once Mercedes’ cash cow, with consumers lining up for the $185,000 S-Class and Maybach models, but that landscape is changing fast. A nasty real estate slump and a sputtering economy mean Chinese consumers are getting stingy. 

(Source: Newsweek)

They’re now leaning toward local brands with lower price tags (like Xpeng and NIO). Meanwhile, Tesla has been offering price cuts to keep sales rolling, slashing the cost of its Model Y in China by around $2,000 to stay competitive. But Mercedes has dug in its heels with a “value over volume” approach, which basically translates to no discounts—they’re still chasing that luxury vibe (even if that vibe is starting to look expensive).

But sticking to high prices might be hitting harder than they’d like to admit. It’s not just lower demand, either; operational costs are ramping up, especially in Germany, where labor and energy are far from a bargain. Tack on the added weight of Mercedes’ electric vehicle transition, and you’ve got a company trying to juggle both electric and traditional models—no cheap feat. High prices plus high expenses? Let’s just say they’re feeling the squeeze from every angle.

The Q3 report makes it pretty clear: Mercedes missed its profit margin target by a mile, plummeting from 8% to a measly 4.7%. Revenue took a hit too, dropping 7% year-over-year to about $36.8 billion, while earnings before interest and taxes tanked by nearly 50% to $2.5 billion. Investors aren’t exactly jumping for joy here—the stock is down around 8% this year, trailing Germany’s DAX index and making a dismal mark on an already struggling European auto sector (which is having one of its worst years, in case you missed it).

So, what’s the plan? Mercedes is hoping a new wave of models next year will bring some life back into its brand. They’re hoping that these fresh high-end additions will capture attention (and money), but in China’s cautious market, that’s a tall order.

Wilhelm also hinted at “tighter cost management” but hasn’t spelled out the details yet. Mercedes now faces the challenge of shaving off expenses without watering down its luxury image (a balancing act that’s easier said than done). And just to make things even trickier, they’re racing against Tesla, which already has the EV market on lock. While Mercedes is trying to manage both combustion and electric models, Tesla has been perfecting EVs for years.

2024 is shaping up to be a crucial year for Mercedes, and it’s clear they’ll need more than just a new model lineup to turn things around. They’re promising cost improvements, but with expenses piling up and the global market holding onto its cash, this is a situation that calls for more than a quick fix. Elon gets a lot of criticism, (a lot from me) but he’s clearly built an empire that even the biggest car companies in the world can’t replicate at scale.

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