Mercedes-Benz has cut its sales expectations for the year, becoming the latest automaker to warn of intensifying pressure in China as it booked a hefty impairment in the country. The German luxury-car maker now expects to sell slightly fewer cars this year than last, while group revenue is also expected to come in slightly below last year, having previously guided for flat unit sales and revenue. According to The Wall Street Journal, Mercedes stated that 'In the Chinese premium and luxury segment, the ongoing intense price competition, especially by local manufacturers, is expected to lead to significantly weaker development of unit sales for many foreign manufacturers.' The company's car sales in China plunged 30%, offsetting growth in all other regions, amid intense competition, cautious consumer sentiment and continuing model changes.
Mercedes reported a 26% decline in core earnings at its cars division to ₹8,300 crore, hit by weak economic conditions and fierce competition in China. The company booked a non-cash write-down of ₹5,900 crore in the value of its Chinese investments, indicating it sees lasting trouble ahead in the world's largest car market. As reported by The Wall Street Journal, Mercedes finance boss Harald Wilhelm told investors and analysts that these adjustments are not a function of change of strategy, but just a function of the commercial environment. Wilhelm noted that 'Obviously it also demonstrates that there is a lower profit contribution expected from these ventures in China compared to the assumptions we took before.' The significant write-down reflects Mercedes' recognition that its Chinese operations face sustained challenges that may require further strategic adjustments.
Facing mounting pressure from Chinese competitors, Mercedes CEO Ola Kaellenius demanded that Germany launch a comprehensive productivity offensive to boost competitiveness. Speaking to reporters, Kaellenius stated 'We are firmly convinced that Germany needs a productivity offensive in the face of international competition, not least from China.' The CEO emphasized that 'We need to increase the competitiveness of Europe and especially Germany. We need to become better than we have been.' German carmakers have been scrambling to reduce costs as Chinese competitors have captured significant market share in their domestic market, with Volkswagen weighing up to 100,000 job cuts across its 10 brands and BMW preparing cost-cutting measures after weakness in China led to cuts in its profit forecast. Kaellenius pointed to the average cost gap of 70% between Mercedes' German and Hungarian operations as evidence of the need for reforms.
Despite China challenges, Mercedes has maintained its substantial U.S. investment commitment, with the company pledging over $7 billion in investments in its U.S. operations, including $4 billion through 2030 to boost SUV production at its Alabama plant. Kaellenius indicated the company could establish engine production in the U.S. depending on the outcome of a North American trade pact revamp currently under negotiation, which could include U.S.-specific content rules for vehicles in the region. At a time when the Trump administration is also pressuring foreign companies with tariff threats, Mercedes' substantial investment commitment reflects the strategic importance of the U.S. market for the German automaker. The company's strong U.S. performance, with sales growing by 10% in the second quarter, continues to help offset challenges in China where sales dropped by 30%.
Mercedes reported second-quarter EBIT of ₹1.55 billion euros, up from ₹1.27 billion euros a year prior, as revenue declined 3.3% to ₹32.06 billion euros. The company reported an adjusted return on sales for its cars business of 4%, down from 5.1% in the previous year. According to The Wall Street Journal, analysts polled by FactSet expected EBIT to come in at ₹1.51 billion euros on revenue of ₹31.88 billion euros, so the company slightly exceeded expectations. Mercedes shares responded positively to the quarterly results, opening up 1.2% in Frankfurt before extending gains to be up 3.9% as of 0940 GMT, according to Reuters reporting. The company's overall net income rose 13.5% to ₹9,000 crore, boosted by savings and helped by its vans and financial services businesses.
