Daimler (DAIGn.DE) was set on Wednesday to launch the new model of its Mercedes-Benz S-Class luxury sedan, which it hopes will help return the German carmaker to profitability next year after the coronavirus pandemic slashed demand for high-end vehicles.
Daimler has launched a new S-Class every seven years for decades but this year’s launch of its most profitable model is particularly important for the company as it battles the fallout from the pandemic and a costly switch to electric cars.
“The S-Class is an important driver of image and, measured by margin, the largest source of profits,” says Frank Schwope, an analyst at Norddeutsche Landesbank.
CEO Ola Kaellenius is leading a cost-cutting drive after Daimler reported a 30% slump in second-quarter revenue and a loss before interest and taxation of 1.68 billion euros (1.49 billion pounds).
Kaellenius flagged signs of a recovery in demand in July, especially for top-end Mercedes-Benz models and electric vehicles, and analysts have also pointed to a strong rebound in China, the most important market for Mercedes-Benz.
Daimler could sell 95,000 S-Class cars in 2021, which with prices at more than 100,000 euros each could contribute more than 2 billion euros to the company’s results, estimates Daniel Schwarz, a car analyst at Bank Mainfirst.
Daimler does not detail profitability of different models, but analysts estimate the margin on the S-Class at 15-20% of sales.
The S-Class should benefit from being the newest premium model on the market as it competes with BMW’s (BMWG.DE) 7 Series and Audi’s A8 (VOWG_p.DE), which were launched in 2019 and 2017.
Daimler is also due to launch the electric version of the S-Class called the EQS next year, although analysts caution that will not be the same money-spinner for the company.
The S-Class provides some comfort for employees concerned about their jobs due to the pandemic and the switch to electric vehicles – it will be produced at a brand new factory in Sindelfingen in southern Germany, near Daimler headquarters.
The factory cost 730 million euros and more than 1,500 employees will work on an ergonomic assembly line, which Daimler says will be 25% more efficient than its previous location.