Mercedes Warns Of Fresh Margin Squeeze As China Struggles Persist

Mercedes-Benz warned that profitability in its car division could come under renewed strain this year, underscoring a difficult outlook as the luxury group contends with elevated costs, weak demand in China and global trade tariffs, according to Reuters.

Shares fell as much as 5.7% after the announcement and were down 3.1% by mid-morning trade on Thursday.

Presenting 2025 results that fell short of expectations, CEO Ola Kaellenius told investors, "The rules are changing," adding, "We are fundamentally reinventing the company."

The automaker projected a 2026 adjusted return on sales of 3% to 5% in its core cars unit, compared with 5% last year — below the 5.4% analysts had forecast. Group operating profit dropped 57% to 5.8 billion euros, missing the expected 6.6 billion euros, hit by roughly 1 billion euros in tariff costs, adverse currency effects and sliding sales in China.

Reuters writes that while management expects a marked rebound in operating profit this year following 1.6 billion euros in redundancy charges in 2025, challenges in China persist. Finance chief Harald Wilhelm said car sales there are likely to decline again in 2026 after a 19% fall last year, as competition intensifies against domestic rivals and peers such as Volkswagen and BMW.

Mercedes is banking on an aggressive rollout of 40 new models over the next three years — beginning with its updated flagship S-Class — to regain momentum in the world’s largest auto market.

Over the longer term, the company aims to lift margins in its autos division back to 8%–10%, supported by what it called "relentless cost discipline." Measures include job reductions launched in 2025 and expanded production in lower-cost locations such as Kecskemet, Hungary. Analysts at Jefferies said the medium-term target "looks confident but may be questioned."