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Profit is a simple word with complicated consequences. The formal definition is how much money a business makes after all its expenses. “After all its expenses” is the killer phrase: many companies with large market shares and substantial gross income simply end up spending too much of it to be profitable.

Nobody demonstrates that difference better than the most profitable car company in the world as of 2022 – Mercedes-Benz.

What is profit in the car industry?

Mercedes might seem like a left-field winner to people who know the automotive marketplace. Stellantis and Volkswagen own more brands than Mercedes-Benz. GM and Toyota sell more cars than Mercedes-Benz. Aston Martin, Pagani, Tesla – more expensive cars, more exciting cars, more futuristic cars. So, where does Benz fit in?

In short, in business. Many car companies sell more expensive products, sell at higher profit margins, and generally bring in more money than Mercedes-Benz. Then, unlike Mercedes-Benz, they spend it all. Why doesn’t Mercedes? 

Mercedes-Benz: Running a car company for fun and profit

Yahoo Finance reports that Mercedes-Benz brought in $158 billion in revenue in 2022. That’s less than half the gross income of larger competitors like Toyota and Volkswagen Group. At first glance, Mercedes’s ability to turn less money into more profit – $27 billion to Toyota’s $26 billion and Volkswagen’s $18 billion – looks like some kind of financial witchcraft. 

It’s simpler than it sounds. As Investopedia reports, it costs a lot to produce a car. Every year, car companies spend vast sums to stay competitive: advertising, research and development, labor costs, plus the enormous expense of building and maintaining the resources necessary to manufacture a vehicle and get it to consumers. 

Mercedes-Benz is a masterclass in how a car company can minimize those expenditures. Per Jalopnik, Mercedes substantially decreased its fossil fuel consumption in 2022, a huge and constant expense for vehicle manufacturers that spiked in Europe last year thanks to Russian embargoes. The company has also avoided expensive government investigations: competitors from Ford and Kia to Stellantis and Tesla have had to navigate massive recalls, breaches of regulation, and a variety of lawsuits in the past few years.

There are no guarantees of automaker success

Finally, Mercedes-Benz is probably the most established brand in the automotive industry. When it comes to crafting a car company’s brand identity, it’s hard to beat one of your founders literally inventing the car. Throw in a reputation for luxury and reliability, and Mercedes-Benz becomes what every car company wishes it were: an established brand with a dedicated customer base.

Of course, no success is forever. As the end of 2023 approaches, car companies will be making their full-year profit reports. In just a few weeks, another car company may well snatch Mercedes-Benz’s crown. If they do, they’ll likely follow a similar playbook: economizing expenses and investing new resources in an established brand.