Automaker Mercedes-Benz has announced job cuts and salary reductions as part of a broader cost-cutting initiative following a significant decline in sales in 2024. The German carmaker, which has been grappling with falling earnings, is shifting its strategy to revive margins, including reversing its previous push toward electric vehicles (EVs).

According to Reuters, Mercedes-Benz has reached an agreement with its works council to offer buyouts to employees and implement a 50% reduction in planned salary hikes. While the company has not disclosed the exact number of job cuts, it clarified that workers involved in car production would not be affected. Additionally, the management has agreed to extend job security guarantees until the end of 2034, providing some stability amid the restructuring.

The announcement comes after Mercedes-Benz reported a sharp downturn in its financial performance. The automaker’s 2024 earnings slumped by 30%, with its car division witnessing a steep 40% decline. Chief Financial Officer Harald Wilhelm warned that earnings would likely continue to fall this year but projected a recovery with an expected return rate of 6-8% in the car division by 2025.

One of the most notable strategic shifts by the company is its renewed focus on internal combustion engine (ICE) vehicles. Last month, Mercedes-Benz revealed plans to introduce 19 new petrol and diesel models alongside 19 battery electric vehicles (BEVs) by 2027. This decision follows a staggering 25% drop in EV sales this year, prompting the automaker to reassess its transition to an all-electric future.

Beyond job cuts and salary adjustments, Mercedes-Benz is implementing additional measures to cut costs. The company aims to reduce production expenses by 10% within the next two years and double that figure by 2030. As part of this effort, the automaker is shifting car production from Germany to Hungary, where costs are approximately 70% lower. However, the company assured that it has no plans to shut down its German manufacturing plant.

In response to broader industry challenges, including rising energy and labor costs in Europe, Mercedes-Benz is also localizing production in China and the United States to enhance competitiveness in key markets. Additionally, the company plans to outsource finance, human resources, and procurement functions as part of its cost-saving strategy.

The auto industry in the European Union has faced mounting pressure due to high operating costs, shifting consumer preferences, and slowing demand for EVs. Mercedes-Benz’s latest moves highlight the growing difficulties for legacy automakers balancing profitability while navigating the transition toward electrification.

With a strategic pivot back to combustion engine vehicles, aggressive cost-cutting measures, and a global restructuring plan, Mercedes-Benz is aiming to stabilize its financial position and improve margins. However, the effectiveness of these efforts remains to be seen as the company braces for another challenging year ahead.