Mercedes Faces Growth Test as E-Class Brings Revamp Full Circle

  • Model lineup probably won't start renewing again until 2018
  • `It's an extremely critical time right now,' CEO says

Mercedes-Benz is completing a decade-long rejuvenation with the new E-Class sedan this month, capping an unprecedented flurry of fresh models that have brought rapid expansion but will make future growth tougher to deliver.

The overhaul of Mercedes’s bread-and-butter business sedan marks the last major model to get a technology and design upgrade until the next-generation A-Class hatchback rolls out in 2018. By that time, Mercedes will face stronger competition as BMW AG and Audi rejuvenate their own lineups and possible new rivals from the likes of Apple Inc. and Google.

The E-class Sedan

Photographer: Geoff Robins/AFP/Getty Images

“It’s an extremely critical time right now,” Dieter Zetsche, chief executive officer of Daimler as well as head of Mercedes, said during a test driving event for the new E-Class in Portugal this month. The goal we set to become more competitive with rivals is “perhaps not accomplished, but pretty close.”

In a reminder of how tight the race is, BMW outsold its rivals last month, narrowing Mercedes’s lead for the year. That keeps the pressure on to invest in self-driving and connectivity features. Daimler forecast that Mercedes’s profit will rise in a range of 5 percent to 10 percent this year, a sharp contrast from 2015’s 40 percent surge. Sales growth will also likely to come under pressure in the coming years.

“They won’t be able to keep this momentum going forever,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler. “The novelty effect is going to start to wear off, and we expect sales growth to slow down from mid-2017.”

For now though, Mercedes is reaping the rewards of its makeover and is on track to overtake BMW as the world’s best-selling luxury-car brand for the first time since 2005. Mercedes delivered 284,566 cars so far this year compared to the BMW’s 277,304, even with BMW outselling Mercedes in February.

Sportier, Sleeker

Mercedes’s resurgence started with the decision to make its vehicles sportier and sleeker. Zetsche then vowed in 2011 to regain the luxury-car top spot by 2020. The goal seemed a stretch at the time as the brand had slumped to No. 3 behind Audi that year.

The first evidence of the revival came with the presentation of the jaunty new A-Class compact in 2012. The car broke with its predecessor’s boxy design, which had failed to attract the young audience it sought. Then came 2013’s revamped top-of-the-line S-Class, which is still selling more than twice as many vehicles as the latest BMW 7-Series introduced in October. Finally, this year’s new E-Class is packed with the latest self-driving features and able to spot jaywalking pedestrians.

Zetsche, CEO since 2006, has promised a product portfolio of about 40 new or revamped models, including a dozen all-new vehicles, by the end of the decade. That leaves about 10 cars without predecessors left to introduce, the company said this week. That comes along with a technology push to counter a new set of automotive contenders such as Apple, Tesla Motors Inc., and Uber Technologies Inc.

“It’s about widening the scope and seeing a much wider kind of competition and setting the direction for the company to thrive for the next 100 years,” Zetsche said in Portugal. “I’m happy we can address this time from a position of strength.”

Before it's here, it's on the Bloomberg Terminal.