Smart has never been a big success and Mercedes may not be willing to keep the brand alive anymore and replace it with a baby Benz.
Automobile Magazine says that after the current generation Smart Forfour and Twingo, Renault will exit the partnership with Daimler for mini cars, so the current Smart platform would be compromised. One possible solution is simply to remove the Smart brand altogether from the line-up, but this is not supposed to occur until 2026 at the earliest.
At the same time, Automobile Magazine says Mercedes could enter the mini segment with its own car, which could be launched after 2025.
The question of missing technical bases is supposed to be solved with a new architecture by Mercedes: a variable platform, known as MX1. This could be the successor of the current MFA2 platform used by the compact family of models (A-Class, B-Class, CLA etc.) and would be a good base for smaller models.
Regarding the future (potential) baby Benz itself, it is assumed it would feature a front-mounted engine and traction layout, a formula used by the current Mercedes compact model family with great success. Some insiders also indicate that the current project name for the baby Benz is U-Class.
Last but not least, these predictions should be taken with a grain of salt. Plans may change after next year when the CEO changes at Mercedes. According to current practice, the details of the models appearing after 2025 are unlikely to be finalized before 2021.