Mercedes Lowers Revenue Outlook Amid Deepening China Luxury Slump

Mercedes-Benz predicts lower 2026 sales due to China’s weakened demand affecting luxury vehicle purchases. Despite challenges, the company focuses on cost reductions, new models, and increased electrified vehicle sales.

Key Points

• Mercedes-Benz anticipates lower sales in 2026 due to weakened demand in China, impacting luxury vehicle demand. Revenue is expected to be slightly below last year’s levels. Mercedes’ sales dropped 30% in China during Q2, leading to a 26% drop in carmaking earnings. Average selling prices fell, highlighting pricing pressure.

• Mercedes’ profitability guidance for the cars unit remains at 3% to 5%. Mercedes-Benz Vans showed resilience with a 10.2% return on sales, aided by commercial demand. New models such as the facelifted S-Class and electric GLC SUV are expected to improve sales. Electrified vehicles’ sales forecasts increased to 23%-25% of total sales.

• The company is pursuing cost reductions, using voluntary severance programs, and trimming administrative and R&D expenses. Despite a price war with BMW in China, new models and efficiency improvements are targeted for the second half of 2026. The first sell-down of Daimler Truck stock raised 417 million euros, boosting cash flow.

In a challenging year for Mercedes-Benz Group, the company anticipates lower sales due to declining demand in China, where a prolonged property slump is affecting consumer confidence and curtailing the appetite for luxury vehicles. This downturn in China exerts additional pressure on CEO Ola Källenius, whose strategy to move Mercedes upmarket has left the company more reliant on affluent buyers amid the country’s economic slowdown. The carmaker’s sales plummeted by 30% in the Chinese market during the second quarter, surpassing the overall market decline.

For the second quarter, Mercedes-Benz reported a 26% decrease in adjusted operating earnings from carmaking, reaching 909 million euros, with the average selling price dropping from 67,700 to 64,700 euros. Despite this, the company maintained its profitability forecast for the cars unit at 3% to 5%, as the second-quarter margin remained at 4%. Meanwhile, Mercedes-Benz Vans provided some relief with an adjusted return on sales of 10.2%, driven by demand from commercial clients and the steady flow of aftersales services.

Looking forward, Mercedes-Benz plans to mitigate first-half challenges by introducing new models in the latter half of 2026, including a facelifted S-Class, and new electric GLC SUV, GLE, and GLS models. The company increased its projection for electrified vehicles to account for 23% to 25% of car sales, supported by the electric CLA and GLC, after earlier models like the EQS and EQE fell short of expectations.

In response to weak demand, Mercedes is focusing on cost reductions and efficiency improvements. While avoiding compulsory redundancies at German plants until 2035, it employs voluntary severance programs to streamline the workforce. Administrative expenses fell by 14%, and R&D spending by 12% as the company passed last year’s investment peak.

Mercedes is facing intensified competition with BMW in China, where a price war and local models with more features are challenging their market positions. Furthermore, geopolitical tensions, including a Middle East conflict, are adding to the strain on luxury automakers. VW has also downgraded its revenue outlook due to deteriorating sales in China, highlighting the broader challenges faced by European carmakers dependent on the Chinese market for growth.

Additionally, Mercedes raised 417 million euros from the first sell-down of its remaining Daimler Truck stake, boosting its industrial free cash flow to 1.1 billion euros for the quarter. This financial maneuver provides some support amid a tough economic landscape, as the company pledges to introduce newer models and enhance productivity in the coming months.

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