Mercedes-Benz Profit Hit by Global Demand Slump, EV Pressure Deepens

Mercedes-Benz Group AG reported a steep third-quarter profit drop as global demand weakened across key markets — particularly in China and North America — underscoring the deepening challenges facing luxury automakers. With consumer confidence waning, financing costs rising, and electric vehicle pricing eroding margins, the company’s latest results signal that even the high end of the auto market is feeling the strain. Investors reacted cautiously, with Mercedes-Benz (Zorrox: DAIM) trading slightly lower in early Frankfurt dealings.

Demand Slowdown Undercuts Earnings

For the quarter ending September 30, 2025, Mercedes-Benz reported net income of €1.19 billion, down nearly 31% from €1.72 billion in the same period last year. Group revenue slipped 6.9% to €32.15 billion, as global vehicle deliveries fell 12% to 441,453 units. The sharpest declines came from Asia — especially China, where sales plunged 27% — and North America, which saw a 17% drop.

Operating profit in the Cars division tumbled nearly 70% to €750 million, reflecting lower unit sales, weaker product mix, and restructuring costs tied to the company’s efficiency overhaul. Adjusted EBIT declined by a smaller 17%, suggesting that disciplined pricing and cost control softened the blow.

CEO Ola Källenius described the Chinese market as a “multi-year adjustment story,” cautioning that market normalization may take longer than expected given local competitive dynamics and macroeconomic headwinds.

Margins Hold as Cash Flow Strengthens

Despite weaker volumes, Mercedes-Benz preserved profitability through its focus on high-margin vehicles. The Cars division’s return on sales edged up to 4.8% from 4.7% a year earlier, helped by a 10% increase in sales of high-end “Top-End” models. These luxury offerings now make up roughly 15% of total deliveries, a structural shift that continues to buffer earnings.

Free cash flow rose to €1.4 billion, reflecting solid working capital management and lower inventory levels. The company resumed its €2 billion share buyback program, a move that signals continued financial resilience despite slowing growth. Its “Next Level Performance” cost-cutting program remains on track to deliver €5 billion in savings by 2027.

Outlook Remains Cautious

Mercedes-Benz reiterated its full-year outlook, projecting EBIT “significantly below” 2024 levels. Management expects continued pressure on both volumes and pricing across its Cars and Vans divisions, citing persistent economic uncertainty, elevated interest rates, and weaker consumer financing conditions.

The automaker is doubling down on capital discipline while maintaining investments in electrification, digitalization, and software integration. However, its dependence on the Chinese market remains a strategic vulnerability as domestic EV makers intensify competition and undercut pricing.

Strategic View and Market Impact

The quarter’s performance illustrates the limits of luxury pricing power in a slower economy. As the EV transition accelerates, automakers are being forced to balance margin preservation with aggressive investment cycles. For Mercedes-Benz, the challenge lies in sustaining premium positioning while weathering volatile demand and narrowing spreads in electric models.

Analysts argue that the company’s brand strength, flexible production model, and liquidity provide a buffer against cyclical weakness. Still, its exposure to China’s evolving EV market — where local brands are rapidly expanding market share — represents a critical strategic test heading into 2026.

Tips for Traders

• Watch Mercedes-Benz (Zorrox: DAIM) for signs of stabilization in China — any recovery could trigger a sharp relief rally.

• Track Cars division margins closely; sustained compression below 4–5% would suggest structural cost pressure.

• Follow EV pricing and input cost trends — particularly lithium and nickel — as these will shape recovery prospects.

• Monitor cash flow and buyback execution; consistency here indicates confidence despite cyclical weakness.

• Consider relative plays in the auto sector: diversified or software-integrated automakers may outperform in the next leg of the market cycle.