Mercedes-Benz Stock: Shares Drop Amid Cost-Cutting Plan

Mercedes-Benz shares fell 3.34% to €58.70 on Tuesday following the announcement of an extensive cost-cutting agreement with its works council. The Stuttgart-based automaker revealed measures aimed at improving profitability and reducing production costs by 10% by 2027 as part of its "Next Level Performance" program. The plan includes significant changes to employee compensation, with future industry-wide wage increases being only partially implemented by offsetting them against existing above-tariff allowances. Employee profit-sharing will be paid for the last time for the 2025 financial year, with no agreement in place for subsequent years. Additionally, the company has approved a voluntary severance program for staff in indirect areas, though production workers are excluded from this initiative. These measures come in response to Mercedes-Benz's substantial profit decline in the previous financial year, where its consolidated result fell by more than 28% to €10.4 billion.

Employment Security Extended as Compromise

In exchange for accepting these cost-cutting measures, the works council secured an extension of employment protection until the end of 2034, benefiting approximately 91,000 employees in Germany. This agreement, known as "Zusi," previously prevented layoffs only until the end of 2029. The company has emphasized that all measures will be implemented fairly and on a voluntary basis. Beyond personnel costs, Mercedes-Benz plans to optimize material costs and further reduce fixed costs by an additional 10% by 2027. Analysts currently maintain an average price target of €66.70 for Mercedes-Benz shares, suggesting potential upside despite the current market reaction.