Mercedes Sales in China Fall 29% as Källenius Says Market Is Worse Than Expected
Key Facts
Mercedes-Benz Chief Executive Ola Källenius said the weakness in China exceeded the company’s expectations, affecting both the broader market and the luxury-car segment, as the company’s passenger-car sales in the country fell 29% through the end of September to about 300,000. A Reuters report carried by Investing.com said Källenius described the market weakness as more severe than expected. The decline puts China at the center of the sales and profitability pressures facing the German company. Källenius said, "Market behavior was difficult to understand," adding that "earnings are falling faster than expected." The company said market conditions had become more challenging during the year, particularly in China.
The pressure showed up in third-quarter results: Mercedes-Benz Cars sold 407,232 vehicles worldwide, down 8% from 441,453 in the same period a year earlier. The company attributed the decline mainly to difficult market conditions and intense competition in China. Its sales in China fell 31% during the quarter, according to Mercedes-Benz Media. By contrast, sales rose 5% in Europe and 6% in the United States, highlighting the divergence in regional performance over the same period. The company also said competition in China had intensified further and that the currency and market environment there had affected results.
The market weakness also hit the automotive division’s profitability. In the third quarter, adjusted return on sales was 2.5%, compared with 4.8% a year earlier, while adjusted operating profit fell to 560 million euros from 1.139 billion euros. In an update issued on October 27, Mercedes cut its forecast for the automotive division’s adjusted return-on-sales margin in 2026 to a range of 2%–3%, from 3%–5% previously. The company said the reduced outlook reflected an increasingly challenging market environment in China, as well as expectations for higher costs in the fourth quarter, including material costs. The new full-year forecast puts the third-quarter margin decline in context.
Mercedes’ difficulties come amid broad price competition, particularly in compact electric cars, where more than 100 manufacturers are competing in China, according to the Reuters report. Källenius had previously expected the price war in that segment not to spread to luxury cars. But the report said a slowing economy and the property crisis had made wealthy customers more cautious. In local market data, vehicle sales by enterprises above the designated size fell 21.2% year on year in September and were down 14.9% in the first nine months of the year. Overall retail sales grew 1.1% from January to September, compared with 2.8% for retail sales excluding automobiles.
Trade data offer a partly different picture from the weakness in domestic car sales: Chinese exports rose 35.2% year on year in October and imports increased 41.6%, while the trade surplus narrowed to 105.3 billion dollars from 133.5 billion in September. The Associated Press said a recovery in crude-oil shipments from the Gulf contributed in part to the increase in imports. The agency also noted that weak domestic demand and excess production capacity were driving China to export more goods. On the company’s response, Källenius said Mercedes could not exclude China from its global plans and was reassessing its business model in the country. The chief financial officer aims to reduce the company’s reliance on Chinese profit sources and localize the supply chain to cut costs and improve competitiveness.
Trading data showed that Mercedes’ American depositary receipt closed at 11.56 dollars on November 10, compared with 11.76 dollars in the previous session. The company’s shares in Frankfurt had fallen less than 1% on Wednesday, October 28, after dropping 3.9% on Tuesday, October 27. China’s National Bureau of Statistics tentatively scheduled November 16 for the release of its national economic performance report, along with the November retail-sales report. Mercedes also plans to present a broader strategic review for 2030 and beyond in 2027, including a detailed review of its China business. The review is expected to show how the company is reassessing its model in the market, Reuters reported.