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Mercedes set to focus on the luxury end of the market

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mercedes luxury car - Wolfram Schroll/Bloomberg
mercedes luxury car - Wolfram Schroll/Bloomberg

Mercedes-Benz has said it will drop some of its cheaper models and focus on the more profitable luxury end of the market.

The German car maker will recast itself as “a dedicated pure-play luxury car company,” it said, in an attempt to take on rivals such as Ferrari.

Car manufacturers including Mercedes have enjoyed a period of high profits as wealthy people sitting on cash piles after two years of lockdowns look for ways to spend their money.

A shortage of parts, most notably computer chips, has prompted car makers to charge more for their vehicles, improving margins.

Last month Mercedes said revenues for the first three months of the year jumped 8pc despite selling 52,000 fewer cars as a result of higher prices, and after more of its top-end models rolled off the production line.

The company will drop the number of entry level models from seven to four and focus its efforts on high-performance AMG and limousine Maybach models, funnelling 75pc of its investment into its luxury brands.

Ola Källenius, chairman of the board of management of Mercedes-Benz, said: “What has always been the core of our brand is now also the core of our strategy: the luxury segment. We are further sharpening the focus of our business model and product portfolio in order to maximise the potential of Mercedes-Benz even in challenging conditions. At the heart of that is our goal to build the world’s most desirable cars.”

Since Ferrari floated in 2015 it has attracted a high valuation for a car company, with multiples of earnings closer to those of a luxury company.

Ferrari has a valuation of more than 30 times its 2021 profits, while Mercedes-Benz is worth a more modest four times its earnings last year.

Mercedes is also racing to electrify its fleet, with plug-in hybrids and battery-powered cars making up about an eighth of sales. The company plans to have an electric competitor in each model range this year, and will sell only electric cars from 2030.