Mercedes Cuts Automotive Margin Outlook to 2%–3% as China, Costs Weigh
Key Facts
On October 27, Mercedes-Benz cut its 2026 adjusted return on sales forecast for the Cars division to a range of 2%–3%, from 3%–5% previously, in a revision that reflects mounting difficulties in China and expected higher costs in the fourth quarter. The company said higher costs would include materials, alongside pressure on demand in China. The group also revised its operating profit outlook, saying it now expects it to match last year’s level rather than increase significantly. It also now expects industrial free cash flow to be significantly lower than the previous year, after its prior estimate pointed to a slight decline. The cut came as it announced preliminary third-quarter results and ahead of the release of its full quarterly report, scheduled for October 28.
After the outlook cut was announced, Mercedes-Benz shares fell 5% on Tuesday, according to a report published by Investing.com. The revision highlighted the challenge facing the Cars division in converting sales into returns, as difficult conditions in China coincide with higher costs at year-end. The annual change was not limited to the return margin; the new operating profit outlook puts it at the previous year’s level, after the company had expected a significant increase. For industrial free cash flow, the outlook shifted from a slight decline to a significant decline. The revision points to the mounting pressures that led the company to change its estimates for the current year.
Preliminary third-quarter indicators showed a mixed picture across the group’s businesses. Adjusted return on sales in the Cars division was 2.5%, above analysts’ average estimate of 2.4%, while the light commercial vehicles division recorded 9.4%, against expectations of 9.1%. Group operating profit was 1.77 billion euros, above the estimate of 1.6 billion euros. But industrial free cash flow was 172 million euros, below the average estimate of 422 million. The figures highlight a divergence between preliminary operating results that exceeded analysts’ estimates in some areas and cash flow that came in below them.
In China, Mercedes sales fell 31% in the third quarter, amid continued difficulty in the passenger car market and intensifying competition, according to a company statement. Mercedes said the GLC and E-Class models together accounted for about two-thirds of its sales in the Chinese market, underscoring the substantial weight of the two models in its sales mix there. Outside China, sales in the Cars division rose 1%, supported by growth in Europe and North America. Sales in Europe rose 5% to 168,700 cars, while those in North America increased 4% to 83,200 cars. This divergence between China and other markets provides geographic context for the outlook cut, as the company said the Chinese market had become more challenging.
By contrast, Mercedes’ all-electric cars reached a record quarterly level of 68,400 cars, up 61% year on year and 29% compared with the second quarter. Their share of global sales in the Cars division rose to 16.8%, an increase of 7.2 percentage points from the same period a year earlier. Including plug-in hybrids, electrified cars accounted for 25% of the division’s global sales. The company said the electric GLC led the increase, with sales more than tripling from the second quarter. It also said the electric GLC L, launched in China in July, was making good progress and was being well received by customers there.
In its previous update, Mercedes had raised its 2026 forecast for electrified cars’ share of Cars division sales to 23%–25%, compared with a previous range of 21%–23%, citing the continued launch of new all-electric models in the second half of the year. The company said the 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 put electric-car growth alongside the decline in China, without offsetting the impact of fourth-quarter costs on the group’s outlook. Mercedes is scheduled to publish its third-quarter interim report and hold its analyst conference on October 28. The upcoming date will allow it to present the full results and details of its revised annual outlook.