Mercedes-Benz’s decision to begin production of its fully electric GLB SUV in Hungary is about far more than launching another electric model. It is a clear signal of how global carmakers are redrawing their production maps as costs rise, trade tensions deepen and competition from China accelerates.
At a price of around €59,000, the electric GLB sits firmly in Mercedes’ premium segment. But behind the luxury badge lies a hard business reality: producing cars in traditional manufacturing hubs like Germany is becoming too expensive in an increasingly fragmented global economy.
Why Hungary, and Why Now
Mercedes has consolidated GLB production at its Kecskemet plant in Hungary, shifting output away from Mexico and reducing manufacturing activity in Germany. The company has also confirmed that some production of its C-Class sedan will move to Hungary later this year.
The logic is straightforward. Mercedes executives have openly stated that production costs in Hungary are less than half those in Germany. In a market where margins are under pressure, that difference can decide whether a model remains profitable or not.
Hungary also offers something just as valuable: proximity. Mercedes manufactures battery packs on site, cutting transport costs, reducing supply chain risks and speeding up production timelines. In an era of disrupted logistics and volatile trade rules, vertical integration is becoming a competitive advantage.
Tariffs Are Reshaping the Auto Industry
Trade policy is now one of the biggest forces shaping global car production. Fresh threats of US tariffs on European imports, including German-made vehicles, have intensified uncertainty for automakers that rely heavily on the American market.
Mercedes, BMW and other German brands export large volumes of vehicles, especially high-margin luxury models, to the US. New or expanded tariffs would immediately eat into profits.
By shifting production to lower-cost European locations, Mercedes gains flexibility. While Hungary does not shield the company from all trade risks, it improves cost resilience and allows the company to absorb tariff shocks more effectively than it could from Germany alone.
China: From Growth Engine to Pressure Point
At the same time, Mercedes is facing a slowdown in China, once its most important growth market. Demand for premium foreign brands is softening as local Chinese manufacturers such as BYD, Nio and Xiaomi rapidly improve quality while competing aggressively on price.
This has triggered a price war, squeezing margins across the sector. Mercedes’ carmaking returns have fallen sharply, dropping below 5 percent — well under the company’s long-term target.
The shift to Hungary should be seen partly as a response to this pressure. Lower production costs help offset weaker pricing power in China and provide room to compete more effectively in global markets.
Electric Vehicles and Strategic Reset
The electric GLB is also part of a broader attempt by Mercedes to regain momentum in electric vehicles, where it has fallen behind BMW and several Chinese competitors.
Earlier product decisions slowed Mercedes’ EV rollout, and the company is now under pressure to deliver successful new models such as the GLC, CLA and GLB electric variants. Cost discipline will be crucial as EV margins remain thinner than those of traditional combustion vehicles.
Producing EVs in cost-efficient locations like Hungary allows Mercedes to scale electric models without undermining profitability, a balance that many legacy automakers are still struggling to achieve.
What This Signals for Global Manufacturing
Mercedes’ strategy reflects a wider shift underway across global manufacturing:
Production is moving closer to demand or lower-cost regionsGermany is losing its automatic status as the default manufacturing hubCost efficiency is becoming as important as brand strengthTrade policy now directly influences factory location decisions
For emerging markets, including those in Africa, this shift matters. It shows how industrial competitiveness today depends on infrastructure, skills, energy reliability and policy stability. Countries that can offer these at competitive costs stand to benefit from future manufacturing relocations.
A Business, Not Emotional, Decision
This is not a retreat from Germany, nor a rejection of premium manufacturing standards. It is a commercial decision, driven by margins, tariffs and global competition.
As Mercedes expands its Hungarian plant into one of its largest worldwide, the message to the global auto industry is clear: the future of carmaking will belong to those who can produce smarter, cheaper and closer to markets, without sacrificing quality.
Written by:
*Chloe Maluleke
Associate at BRICS+ Consulting Group
Russian & Middle Eastern Specialist
**The Views expressed do not necessarily reflect the views of Independent Media or IOL.
