Well, BMW/Mercedes and other does have to withdraw V8's to comply with emissions regulations... Lexus/Toyota does not
Lexus/Toyota might get a lot of new buyers with this move... Imagine a C63 buyer used to get bigger turbos and stuff buying a 4 cylinder PHEV? In USA? I'm not seeing it happening....
MB have lost their minds...I could say.
BUT it goes back to their roots in terms of high performance I4 based compact RWD halo variant vs big engine vehicle.
The 1980s to early '90s 190E (W201) 16 valve Evolution comes to mind:

But they did have that AMG tuned 190E 3.2 AMG Inline 6 in the early 90s. Now that was sex!
3.2L I6 AMG 190 E (1992-93)



As MB dabbled into official AMG variants, the first 1994 1/2 C36 AMG design had quietly been approved in parallel during 1990 and patented 12/19/1990, 1 year after the overall W202 C-Class body had been set in 1989 (launched summer 1993). AMG wasn't a division of Mercedes-Benz until 1991.
W202 "190" Clay on February 27, 1989
3.6L V6 C36 AMG (1994-97)

C43 AMG V8 existed from 1997's C-Class facelift, but upon redesign again reverted to a V6 in 2001 with the C32 AMG (W203).
4.3L V8 C43 AMG (1997-00)
3.2L V6 C32 AMG (2001-04)
It wasn't until the facelift in 2004, a V8 returned as C55 AMG, powered by a 5.5L was nestled into the W203 generation and then bumped to C63 badging in 2007 upon W204 redesign.
5.5L V8 C55 AMG (2004-06)
6.2L V8 C63 AMG (2007-10, pre-facelift)
It's going back to basics essentially. Current W205's already downsized 4.0L TTV8 signaled things to come. A chapter finally ends with the compact V8 muscle sedan.