The 2025 financial results from Stuttgart’s automotive giant paint a clear picture: this was not merely a weak year, but a fundamental step backward. The company now faces the critical test of whether its newly announced corrective strategy can deliver a turnaround.
A Multi-Front Assault on Profitability
Mercedes-Benz Group’s financial performance deteriorated significantly across key metrics. Adjusted earnings before interest and taxes (EBIT) plummeted to €8.2 billion from €13.7 billion, marking a drop of approximately 40%. Net profit was nearly halved, landing at €5.33 billion. Within the crucial Cars division, the return on sales contracted from 8.1% to 5.0%, while the average selling price per vehicle declined from about €71,000 to €68,100. This data reveals a business under simultaneous pressure from multiple directions.
Company leadership pointed to three primary headwinds: tariff burdens totaling roughly $1.2 billion, persistent competitive pressure from Chinese electric vehicle manufacturers, and adverse currency exchange effects. A particularly painful development was the 19% drop in unit sales in China—a market that accounts for nearly one-third of the group’s global passenger car volume.
Strategic Pivots and Shareholder Returns
In response to the diminished profits, the board proposes reducing the 2025 dividend to €3.50 per share, down from €4.30 the prior year. Some market observers view this cut as less severe than anticipated, given that steeper reductions had been widely discussed. The ongoing share buyback program continues, with up to €1.7 billion still authorized for 2026. Major Chinese shareholders Beijing Automotive Group and Geely Group have committed to keeping their voting rights below the 10% threshold.
For its operations in China, the automaker is doubling down on localization as a strategic countermeasure. The goal is for over 80% of vehicles sold in China to be produced locally by mid-2026. This shift aims to establish a more favorable cost structure and enhance agility in the world’s most competitive automotive market.
On costs, Mercedes-Benz has already realized savings of €3.6 billion. It is targeting a 10% reduction in production costs per vehicle by 2027. Adding to this restructuring, the joint venture plant in Aguascalientes, Mexico, is scheduled to close by May, resulting in a capacity reduction of around 100,000 units.
Betting the Future on an Unprecedented Product Blitz
The core of the group’s recovery plan is a product-led offensive. Management has committed to launching more than 40 new models within a three-year window, calling it the most extensive product rollout in the company’s history. The first half of 2026 will see refreshed versions of the S-Class and GLS, alongside new AMG models. The new CLA has already received the “Car of the Year 2026” award.
For the current fiscal year, executives anticipate revenue in line with the previous year’s level and Group EBIT “significantly above” the 2025 figure. However, a return to double-digit profit margins is not projected before 2027. The company’s forecast for an adjusted return on sales in the Cars division of 3% to 5% falls notably below the average analyst expectation of 5.6%—a disappointment that continues to weigh on the share price. Trading near its 200-day moving average with a Relative Strength Index (RSI) of 36, the technical chart picture indicates ongoing weakness.
The Q1 2026 results, due on April 29, will provide the first concrete evidence on whether the three-pronged strategy of cost reduction, China localization, and product innovation can indeed initiate the promised earnings recovery.
