Mercedes goes '100% China for China' from 2027 as German costs bite

Mercedes-Benz will abandon the production model it has used in China for two decades and move to a "100% China for China" strategy, starting with a fully localised electric E-Class in the second half of 2027. Chief Executive Ola Källenius delivered the shift in Berlin alongside a harder message for domestic operations: German production costs must fall to US levels.

The pairing is not coincidental. On a cost index where Germany sits at 100, the US stands at around 80, and Källenius said management are pressing staff to work longer hours without extra pay to close the gap. The two announcements are better read as halves of one decision than as separate initiatives.

What changed in the old model?

Under the previous approach, Mercedes split production of each car between regional sites before completing final assembly in China for local buyers. Källenius told the Berlin audience that system no longer works. "We, and anyone else who wants to be a global player, will have to adapt the entire business system, because a competitive fight is taking place in China among more than 100 brands," he said.

The competitive picture is stark. Mercedes sales in China fell 31% in the third quarter amid weaker luxury demand and stronger local rivals. Källenius described the current Chinese consumer mindset as "very, very cautious".

How local is 'localisation'?

Källenius defended staying in China even as he acknowledged the industry's entanglement. "The auto industry is perhaps the most interconnected in the world," he said. "It would be completely illusory to think you can break that apart so we have to cooperate intelligently."

In practice, interconnection now means Chinese suppliers and software partners such as Momenta, Tencent and ByteDance working inside the company, rather than German parts flowing to Beijing. Full localisation severs exactly the cross-border chain that once linked Mercedes' Chinese assembly to its European component base — and offers little comfort to German suppliers already in deep cost-cutting and layoff campaigns.

Chief Financial Officer Harald Wilhelm said future China-built vehicles would move close to full local sourcing to cut costs, and Mercedes intends to rely less on Chinese profit pools overall.

What does this change for German plants?

Plenty. Mercedes has stated on the record that further savings could equal the cost of closing two plants, though it stressed the comparison was purely illustrative and no sites have been identified. "We can't hide anymore," Källenius said. "If we're not ready to take a significant leap then we'll have clearly less industrial activity in this country in 10 years time."

That framing is hard to dismiss entirely when Volkswagen is literally closing plants and citing virtually identical cost pressures. The pressure on margins is already visible: Mercedes cut its full-year outlook last month, now expecting an adjusted margin of 2%-3% for its cars division, down from 3% to 5%. A relaunched voluntary severance programme for indirect German staff opens in December; the previous round cost about €1.8bn (US$2bn) in provisions in 2025, with the new round's earnings impact falling mostly in 2027 — the same year the China-built E-Class arrives.

Does localisation actually fix China?

The CLA L, Mercedes' China-exclusive long-wheelbase electric saloon, explains the stakes. It offered up to 866 km of CLTC range yet sold just 627 units in the first half of 2026 before production at its Beijing joint venture was reportedly paused. It was tailored to local tastes but not to local prices. The E-Class localises the cost base rather than just the wheelbase — a more credible answer, provided savings reach the price tag. Källenius has ruled out chasing market share at any cost in a market where domestic rivals compete precisely on price.

Growth, meanwhile, is shifting westward. Källenius said US sales could rise from more than 300,000 vehicles a year towards 400,000, backed by further investment, with lower-cost plants in Hungary, Romania and Poland strengthening margins. Audi's US$4bn commitment to a new US assembly plant shows the same logic across the German industry.

Mercedes is effectively replacing one global production system with three regional ones: China for China, the US for the US, and Eastern Europe for much of Europe. Germany's place on that map is no longer guaranteed by heritage. What to watch next: whether the 2027 E-Class launch delivers savings to Chinese buyers rather than to the margin line, and which German sites survive the cost-index test Källenius has now set.