Mercedes-Benz reported a significant drop in operating profit at the beginning of 2026, impacted by the ongoing economic downturn and intensifying competition in China. The higher expected raw material costs and further tariff pressures this year have added to the challenges faced by the German automaker, which is striving to boost sales through the revamping of its vehicle lineup.
Like its German counterparts Volkswagen and BMW, Mercedes-Benz is experiencing a decline in sales in China. Domestic Chinese brands such as BYD and Nio, with their affordable electric vehicles, have been gaining market share and gradually encroaching on the high-end luxury car market.
According to the report released on Wednesday, Mercedes-Benz’s first-quarter earnings before interest and taxes (EBIT) stood at 1.9 billion euros (approximately 22.2 billion US dollars), marking a 17% year-on-year decline. The profit margin also contracted, dropping from 7.3% in the same period last year to 4.1%, yet still within the expected range of 3% to 5% for the full year.
The company recorded a 6% decrease in global sales, with its largest single market, China, experiencing a substantial 27% decline. Additionally, the average selling price per vehicle dropped by around 7.7% to 66,700 euros.
China, once a core growth engine for the company, has now become a major drag on its performance. CEO Ola Kaellenius is betting on extensive cost-cutting measures, including job cuts, and plans to introduce 40 new vehicle models by 2027 to reshape the product line.
“Due to a transition year of a full range product replacement in China, intense competition and subdued demand continue to weigh on the market,” the company stated. In response to the challenges, Mercedes-Benz is increasingly relying on local research and development and partnerships to tailor vehicles to Chinese consumers.
Despite the difficulties, the management admitted at last week’s Beijing Auto Show that Mercedes-Benz is prepared for a prolonged period of economic weakness.
As the Middle East conflict persists, rising global automotive industry costs have further complicated the situation for European car manufacturers already affected by the high import tariffs imposed by the Trump administration in the United States.
Despite the unfavorable start, Mercedes-Benz still anticipates a “significant increase” in full-year operating profit for 2026 compared to 2025. This expectation is partly due to the inclusion of high restructuring costs last year, leading to a lower base. Moreover, the heavily revamped S-Class sedan, which is expected to debut in the second half of the year, is poised to drive the profit margin recovery.
CFO Harald Wilhelm emphasized that the company will maintain strict cost control to address fluctuations in raw material prices and the impacts of geopolitical tensions.