Mercedes flags more margin pressure ahead, tough road in China

By Rachel More

STUTTGART, Germany, Feb 12 (Reuters) - ‌Mercedes-Benz said on ​Thursday ​that the profit margin at its autos division could fall further this year, indicating tough months ahead as the luxury carmaker grapples with high costs, a tough ‌Chinese market and global tariffs.

The premium German automaker is pinning its hopes on ⁠new product launches in the coming years as it endeavours to win back customers in China - the world's largest car ‌market - and revive its dwindling margins.

"The ‌rules are changing," CEO Ola Kaellenius said, mapping out the group's turnaround plan to investors after presenting worse-than-forecast 2025 results.

"We are fundamentally reinventing the company."

NO RECOVERY IN SIGHT IN CHINA

For ​2026, Mercedes forecast an adjusted return on sales in its core cars division of between 3% and 5%.

This followed a 5% margin in 2025, missing analysts' forecast of 5.4% in a ⁠Visible Alpha poll.

Shares in the company fell by as much as 5.7% following the results and were trading 3.1% lower by ​0913 GMT.

At the group level, full-year operating profit more than halved to 5.8 billion euros ($6.9 billion) in a year marred by 1 billion euros in ​tariff costs plus falling sales in the cutthroat China ‌market and negative currency effects.

Analysts had expected a 6.6-billion-euro result.

Mercedes forecast a significant increase in operating profit in 2026, after sweeping redundancies cost the company ⁠1.6 billion euros in 2025.

Kaellenius said Mercedes had rolled out "the biggest product launch offensive in the history of the company", with 40 models coming over the next three years, starting with the revamped flagship S-class presented ⁠last month.

China, however, will remain challenging for Mercedes, which like German companies Volkswagen and BMW, has struggled to compete ​in a spiralling price war with local rivals.

Mercedes car sales in China are expected to fall further in 2026, finance chief Harald Wilhelm said, after a 19% decline the year before.

MERCEDES-BENZ WARNS OF RELENTLESS COST DISCIPLINE

Mercedes-Benz says ‌it plans to return to an 8% to 10% profit margin at its auto division in the coming years, partly through what it described ‌as "relentless cost discipline".

Mercedes has been seeking to reduce its fixed costs through job cuts initiated in 2025 while ⁠also doubling capacity in "best-cost countries", including ‌an expansion of its plant in ​Kecskemet, Hungary.

Analysts at Jefferies said that medium-term target range "looks confident but may be questioned".

($1 = 0.8431 euros)

(Reporting by Rachel More; Editing by Ludwig Burger, Thomas Derpinghaus and ‌Joe Bavier)

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