Mercedes Cuts 2026 Car Margin Outlook to 2%–3% as China Pressures Mount
Key Facts
Mercedes-Benz cut its 2026 adjusted return on sales forecast for its car division to 2%–3%, from a previous range of 3% to 5%, in a revision reflecting a difficult Chinese market and expected higher costs in the fourth quarter. The company said higher costs would include materials and that market conditions in China were becoming more challenging. The group also revised its EBIT outlook, saying it now expected it to match the previous year's level rather than be significantly higher. It had previously forecast an increase of at least 15% in 2026 core earnings, compared with 5.8 billion euros in 2025. The revision puts the car business's profitability under dual pressure from competition in China and year-end production costs.
Preliminary third-quarter results showed mixed indicators ahead of the full report. The car division's adjusted return on sales was 2.5%, above analyst consensus of 2.4%. Group EBIT was also 1.77 billion euros, compared with forecasts of 1.6 billion euros. By contrast, free cash flow at the industrial business was 172 million euros, below consensus of 422 million euros. The performance combined preliminary operating results above estimates for margin and EBIT with cash flow below expectations.
After the outlook cut, Mercedes shares fell 4.2% on 27 October, while Volkswagen and BMW shares each declined by slightly more than 2%, according to Agence France-Presse. The share decline came as the company cut its annual forecast while preliminary third-quarter results beat consensus on some indicators. But industrial free cash flow fell short of analyst estimates, while the company pointed to higher fourth-quarter costs. The margin revision highlights the difficulty of converting sales into returns amid weaker demand and competition in China. The impact of these pressures remains a key focus for investors assessing the revised annual outlook.
Mercedes' car division sold 407,200 vehicles in the third quarter, down 8% from the same period a year earlier. Sales in China fell 31% amid persistently difficult conditions in the passenger-car market and strong competition, according to a Mercedes-Benz statement. The GLC and E-Class models together accounted for about two-thirds of the division's sales in China, underscoring the concentration of sales there in those models. Outside China, the division's sales rose 1%, with Europe up 5% to 168,700 vehicles. They also increased 4% in North America to 83,200 vehicles, contrasting weakness in China with growth in the two regions.
Alongside this, battery-electric vehicle sales reached a quarterly record of 68,400, up 61% year on year and 29% from the second quarter. They accounted for 16.8% of the car division's global sales in the third quarter. Including plug-in hybrids, electrified vehicles made up 25% of the division's sales. Mercedes said sales of the electric GLC were more than three times their second-quarter level. It added that the electric GLC L, launched in China in July, was expanding sales and receiving a positive customer response there.
Mercedes said its electric GLC, CLA, GLB and GLA models were sold out in Europe for the remainder of 2026, with order books extending well into 2027. These indicators point to strong demand for several electric models in Europe alongside declining car sales in China. However, electric-vehicle growth did not prevent the company from cutting its full-year car-division margin outlook after citing Chinese market conditions and higher material costs in the fourth quarter. The full third-quarter interim report and analyst conference are scheduled for 28 October 2026. The company's sustainability update will follow on 10 November 2026.