Mercedes-Benz lowered its 2026 profitability outlook Tuesday as deteriorating conditions in China and higher fourth-quarter costs increased pressure on the German luxury automaker.
Mercedes now expects an adjusted return on sales of 2% to 3% for its core car division, down from its previous forecast of 3% to 5%.
The company also reduced its group operating-profit guidance. Earnings are now expected to be broadly unchanged from last year rather than significantly higher.
Investors reacted sharply. Mercedes shares fell more than 5%, putting them on course for their largest one-day decline since May 2025.
The revised outlook follows an 8% year-over-year decline in third-quarter car sales, with weakness in China weighing heavily on performance.
China has become increasingly difficult for established European manufacturers as domestic automakers expand rapidly and compete aggressively on pricing, electric-vehicle technology and software.
The problem extends beyond Mercedes. Other major German automakers have also faced weakening Chinese sales while Chinese manufacturers simultaneously expand their presence in European markets.
That creates a structural challenge for an industry that historically generated substantial volumes and profits from the world’s largest automotive market.
Mercedes is also confronting higher costs during the fourth quarter, adding pressure as management attempts to protect profitability.
The immediate questions are whether Chinese demand stabilizes, how aggressively local competitors continue gaining share in premium segments and whether cost reductions can prevent further margin deterioration.
